When David and Emma wanted to consolidate their debt, we offered them a guarantor loan. That’s when David asked us: what is a guarantor loan ?
What is a guarantor loan?
David* is 31 years old and lives with his fiancé, Emma, and their one-year-old son, Harry. David and Emma rent privately, like a lot of people their age. With Emma’s maternity pay and David’s salary, they are able to pay their rent, make monthly payments on a car loan and pay off their credit card debts. However, just before Harry’s first birthday, David was made redundant.
With rent and a car loan to repay – as well as presents and decorations to make Harry’s first birthday special – David and Emma dipped into their savings, and then into their overdraft.
After months with little luck finding a new job, they began putting their weekly shop on their credit cards and borrowing money from friends and family to get by. A couple of weeks later, David started a new position as retail manager at a local business earning £23,000 a year, but by that time, they had already missed a few payments on their credit cards and car loan.
With every pay slip, David and Emma started to chip away at all of their debts and money they owed – but they found that the different payment dates, on top of everything they needed for Harry, was making it difficult to manage their money carefully. Frustrated and unsure what to do about the situation, David spoke to his dad, who recommended an unsecured loan to consolidate all of their debt into one manageable monthly payment. David’s dad had taken out a debt consolidation loan the previous year, after he’d had a little financial difficulty.
After checking his credit score, David knew that he’d need to look for a lender that specialised in helping people with less-than-perfect credit.
So he called Bamboo for an unsecured loan
A few minutes later, David was talking to Charlie, a member of our Applications Team, and discussing taking out a loan of £5,000 to consolidate his debt. Running his details through the system, Charlie generated a quote for him and advised: “Unfortunately, we aren’t able to consider you for an unsecured loan.”
David was gutted. In his head, he scrambled to think of another way to get together all of the money they needed every month, which meant he only half-heard Charlie say:
“However, we are happy to consider lending you the £5000 with a guarantor loan.”
David had never heard of a guarantor loan before.
“Erm, what is a guarantor loan ?” he asked.
“You get somebody to guarantee your loan repayments every month, just in case you can’t pay them” Charlie said. “It means that we’re able to consider offering you the loan with better rates because we believe you and your guarantor are more likely to repay the loan.”
“Sorry, you’re saying that I can borrow the money?” said David.
“Well, yes, subject to some checks and if you can find a guarantor to help your application along.”
“Who can I get to do that?”
“Anybody, really. They just need to be somebody over the age of 21 with a regular income that can afford to make your repayments should you not be able to. We’ll run a credit check on them too, just to be sure that they’re not putting them self in a difficult financial position if you can’t afford to pay.”
“I never knew this was an option. Can I have some time to look into it?”
“Of course you can” said Charlie. “We have some basic criteria that our guarantors need to meet, but I could help you find the best guarantor, for example, a homeowner is twice as likely to get accepted, to give you the best chance of getting this loan. If you head over to our blog, there’s lots of advice on there too.”
“Cheers, I’ll think about it and get back to you”, said David.
Thinking it over – is a guarantor loan right for me?
Hanging up from Charlie, David went to speak to Emma.
“I’ve just got off the phone with Bamboo. They said they couldn’t offer us an unsecured loan, but they’d be willing to lend us the money we need with a guarantor loan.”
“Oh. What is a guarantor loan ?” ** Emma asked.
David explained what a guarantor loan was, and they pulled up a few blog posts about finding a guarantor to read.
“This is great”, said Emma.
“And I can ask my dad to be our guarantor, as he already knows about our situation”, said David.
** Get the facts: What is a guarantor loan?
We get lots of customers asking us, what is a guarantor loan ? This is what we always tell them:
A guarantor loan is a loan that requires another party (a guarantor) to co-sign the agreement, agreeing to pay the debt should the borrower be unable to keep up their payments. Applications can be submitted online or over the phone with an advisor.
Finding a guarantor
After asking ‘ what is a guarantor loan ?’, David’s dad agreed to help them out.
David and Emma made sure that they could afford the repayments, and that David’s dad understood the risks and responsibilities of being a guarantor before David submitted the application online. Just like what David had been quoted over the phone, he was provisionally accepted for a guarantor loan of £5,000 on a 3-year repayment plan (with monthly repayments of £243.48), subject to credit checks on him and his guarantor with an APR of 49.7%.
Bamboo also spoke with David’s dad over the phone, but the next day, they had some bad news.
We require a new guarantor for your £5000 loan.
Confused, David called Charlie again to find out why.
“Unfortunately, your guarantor didn’t meet our criteria after our assessment of his side of the application and his credit file”, Charlie told him.
David covered the phone and quickly asked his dad why he might not have passed the credit check. David’s dad said that he’d missed a payment or two on his debt consolidation loan a few months ago, but that he didn’t think it would make a difference.
“Does this mean that I can’t apply for another loan, now?” David asked Charlie.
“Your loan application is still provisionally accepted with us, you just need to provide another guarantor. As soon as you’ve got a guarantor that meets our criteria and both of you pass our checks, we’ll have the money with you in no time”, said Charlie.
That evening, David and Emma sat down and worked out their options. Emma’s father owned his home and had his own construction business, so he seemed like the best choice. Emma phoned her dad and explained the situation. “ What is a guarantor loan ?” he asked.
Like with David’s dad, Emma explained that a guarantor loan was a loan that was guaranteed by another person, just in case the borrower can’t repay the monthly instalments.
“But Dad, they run a credit check on the guarantors too. Will that be OK?” “Of course.”
“Then it should be fine. I’ll propose you as the guarantor online or call them now if that’s ok?” said Emma.
Getting the loan
At lunch time the next day, David checked his emails and saw an email from Bamboo and a missed call. The email asked for proof of income, which he was able to send over via email. Emma’s dad received a phone call to make sure he understood what it meant to be a guarantor. He was also told that the money is paid into the guarantor’s bank account and that he would have to transfer the money to David.
Once David submitted his proof of income, he soon received another email.
Almost there! Your new loan agreement is attached and ready to e-sign. As long as your guarantor has e-signed the new guarantee and our last check is successful, we will sign and pay the funds out.
And after he signed his documents, he got another email.
Great news! You’ve been accepted to borrow £5,000. The money should be in your account by midnight tonight.
David texted Emma “we’ve got it!” and sent a thank you text to Emma’s dad.
That evening, the money was in their account. They paid off all of their credit card debt, overdraft and the money they owed their friends. David and Emma had to pay £243.48 every month to clear their debt consolidation loan, but it was easy to do since it was just one payment. By the time they’d repaid their loan, and because they’d been making monthly payments regularly without missing any, they found that their credit scores had significantly improved too.
David and Emma made extra payments some weeks if they had a spare £10-£20 which meant that they had the loan for less time than planned and therefore paid less interest making the loan cheaper than originally thought.
*A note from the Bamboo Team:
All of the details included in this article are based on real-life situations faced by Bamboo customers, but for the sake of privacy and anonymity, we’ve created ‘David’ to tell the story of customers who find themselves asking us: ‘ What is a guarantor loan ?’
At Bamboo, we offer guarantor loans for anywhere between £1,000 and £8,000. So if you find yourself in a situation like David and Emma, why not see how much you could borrow? If you’re approved, you could be on your way to repaying your debts and repairing your credit score in under 24 hours. Representative APR 49.7%