Yes, non-homeowners can be the guarantors on a loan. One does not need to be a homeowner mandatorily to be a guarantor to qualify for a guarantor-based loan. Instead, they need to reveal the best of loan affordability by ensuring a regular income and a good credit score to qualify for the loan. A guarantor loan may help the individual who struggles to qualify for a loan fetch better interest, loan amounts and terms.
What are guarantor loans for non-homeowners?
Guarantor loans for non-homeowners are unsecured personal loans where the guarantor does not need to be a homeowner to qualify as one. Instead, one may help the prime borrower by proving the strength of repayment capacity and credit score.
These modern-day non-homeowner guarantor loans in the UK help you enter into a loan with someone who lives with you or separately on rent. However, they must meet the specific affordability and eligibility set by the respective loan provider. The guarantor helps the prime borrower with payments only when the borrower cannot pay.
Who qualifies as a guarantor on a loan?
A guarantor must:
- Be over 21 and under 75 years old
- Have a good and consistent income
- Have good credit history
- Not be financially linked to you
- Not be a spouse, civil partner, or business partner
- Do not share a bank account with you
How do non-homeowner guarantor loans work?
A guarantor loan works slightly differently from other personal loans. Here, two individuals are involved in the loan, and hence the liabilities shift a little. Here is how the non-homeowner guarantor loans work:
Step 1- Find a reliable guarantor
A guarantor can be a relative, family member, or friend who does not own a home but has a decent and regular income with a good credit score. You must have a good relationship and rapport with the person to commit to a long-term loan. The person should be someone on whom you can rely for payments if you cannot pay.
Step 2- Pass the credit assessment
You and the respective guarantor must pass the affordability assessment that the loan provider conducts. It is a mandatory process that you must undergo and clear to get a loan. In this, the loan provider checks the finances and affordability of the prime borrower and the guarantor. Generally, a guarantor should have better financial standing than the primary borrower to qualify for the loan.
Step 3- Get a pre-approval offer
You may get a quick quote based on the financial affordability checks. It lists the approximate terms, amount, interest, and total amount that you may need to pay on the loan. Discuss the basic and no-obligation loan agreement with your guarantor before proceeding. Check whether it aligns with the finances of both the persons involved. Proceed only if you believe that you can afford the payments.
Step 4- Get the final loan agreement
Once you decide to proceed, the loan provider may demand certain documents like income proof, bank statements, residential history, past debts, etc. They analyse the income and finances of both the persons involved by checking the actual proofs. It helps them offer only the amount that the people involved can repay comfortably. You usually get a higher amount with a guarantor-based loan.
Step 5- get the loan amount
You usually get the loan amount in a joint bank account or the guarantor’s bank account. The funds are transferred the same day, given the accurate loan application details. The prime borrower may take the amount after discussing it with the loan guarantor and use it skillfully for the respective purpose.
What are the benefits of non-homeowner guarantor loans?
Here are some benefits of the non-homeowner guarantor loans:
1. Few obligations
Having a guarantor to back you up reduces the fear of rejection on a loan with a bad credit score. Moreover, having someone to support you with the loan payments if your finances change prevents you from affecting your credit score and attracting high penalties. It is because the guarantor is obliged to pay on your behalf if you cannot. Thus, the loan reduces your obligations towards the loan.
2. Increases loan approval chances
Having a guarantor by your side reduces the risk for the loan provider. It is particularly when applying with a guarantor with a bad credit score and low income. The guarantor acts as a security for the payments if you cannot pay. Thus, the creditor will get the repayment on the loan anyhow. It increases the chances of qualifying for the loan.
3. Get a higher amount
A guarantor with a good credit score and income may help you get the loan with a higher payout than what you may qualify for individually. It may help you achieve your life goals without depending on savings or delaying the goal until you save enough.
4. Opportunity to build credit
Paying the repayments on time increases the chances of improving the credit history. You and the guarantor can decide the repayments and set direct debits to avoid missing any. It may help both the credit scores, and one may benefit from this if applies for a credit in future. It may help you fetch better interest, flexible terms, and a higher amount individually on a loan later.
5. No need to risk assets
When two individuals’ income is combined on a loan, collateral is not needed. Having a guarantor erases the requirement of providing an asset as collateral. It is because the guarantor here acts as a repayment assurance.
What are the risks of non-homeowner guarantor loans?
Non-homeowner guarantor loans carry serious financial risks for both borrowers and guarantors. Here is what you need to know:
a) risk of credit damage
If you default on a loan or miss repayments, your and the guarantor’s credit scores may fall. It may make it challenging for you to clear the debt as penalty and interest costs increase the liabilities.
b) Relationship strain
The risk of damaging your relationship with the guarantor constantly lurks, as it is a long-term loan and requires consistent commitment. Make sure to apply with someone whom you trust fully.
c) Debt collection and legal action
Non-repayments or loan defaults may cause the creditor to report your dues to the debt collection agency. They may also issue a CCJ, which may further deteriorate your credit score.
Bottom line
Thus, one may consider a non-homeowner as a guarantor on a loan for their needs. However, the person must have a valid income and a good credit score to qualify as a guarantor. You should share a strong bond with the person whom you want as a guarantor. The person may help repay the dues only if you cannot pay. Having a guarantor increases the chances of getting a cheaper loan with a higher payout.
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