What are guarantor loans?
A guarantor loan is a type of lending plan that can be applied for by an individual with the financial backing of another. This person could be their spouse, a friend, or a family member – in fact the majority of banks in Australia will consider guarantor applications that are financially supported by an individual with a good track record when it comes to their finances.
How do they work?
In the majority of cases there will be an initial borrower, a chosen lender and a complementary guarantor. The role of the borrower will be to create the application and submit their documentation to their chosen bank. The role of the bank will be to consider lending a cash sum to the borrower and the responsibility of the guarantor will be to ensure that payments are kept up with should the initial borrower default on their repayments.
What is a guarantor?
In the simplest terms, a guarantor will be a person that’s willing to financially ‘vouch’ for the borrower, whilst accepting that if the borrower isn’t able to pay back what is owed; it will fall down to the guarantor to cover the costs associated with any money that they owe. Therefore, the onus will be on the guarantor to A) be able to demonstrate their confidence in the borrower to provide more reassurance to the bank and B) show that their own income will be able to cover the costs of a repayment plan should the borrower default.
Are guarantor loans guaranteed to be approved?
Not in all cases, but with the right types of documentation provided by the potential borrower; these types of loans have a much higher chance of being approved by a lender. This is because of the fact that not only will the lender be able to request payments from the initial borrower – but because, just in case they can’t repay what they owe, they will possess a legally binding contract with a guarantor that will allow them to continue to receive their cash back.
How to apply
In most cases, hiring Mortgage Broker Melbourne can be beneficial when it comes to applying for a guarantor home loan. These financial experts can often negotiate the fairest terms to alleviate the pressure on all parties involved, whilst ensuring that the cheapest rates of interest are found as well. Alternatively, an application can be made alone directly to a bank and in these cases, the borrower and guarantor will both need to provide all formal documentation to be able to proceed with the loan application.