The Checks Done by Guarantor Lenders
The application for a guarantor loan is completely online and the customer will be asked to fill in details about themselves and their guarantor and if successful, they will be asked to co-sign the loan agreement. Each lender has their own algorithm to run a series of checks prior to granting a loan to a customer.
Credit checks are the most common checks carried out by lenders. A credit check is run on the borrower and the guarantor to assess how well they have repaid other types of credit and loans in the past. Based on this, the lender is able to get an idea of how likely the borrower or guarantor will be able to repay the loan. The lenders typically work with credit reference agencies so by performing a search on someone’s credit, they have access to all other loans they have made in the past. In the same way, the lender will report back to the credit reference bureau whether the loan has been repaid or not and this will cause their credit score to change. As mentioned above, repaying the loan on time will improve the credit rating of the customer but failing to repay will cause the credit score to decrease. So if a customer has defaulted on a loan and tries to get another loan elsewhere, the credit checks will show that they have missed repayment on a different loan and therefore be unlikely to proceed.
Other important checks include affordability measures to match how much the borrower wants to take out and how much they can afford to repay without going into arrears. Simply because a customer wants to borrow the maximum amount of £7,000 doesn’t mean that they are in a financial position to do so. The lender has a responsibility to ask questions about the customer’s salary, work position and monthly expenditure in order to gauge just how much they can afford to borrow each month. Typical affordability checks include asking for bank statements and pay-slips to confirm employment and salary. A failure to carry out credit checks will cause the borrower to possibly receive too much money and then struggle to make the monthly repayment and lead to financial difficulties.
When looking for a guarantor lender, take a look at guarantorloanlenders.co.uk.