A loan guarantor will not solve all borrowing problems

It is true that often borrowers are able to breach the gap between their borrowing needs and the loan qualification criteria of lenders, by using a loan guarantor. However guarantors can only be helpful in some borrowing situations, while in others they can either add nothing to a transaction, or perhaps not even be allowed to offer guarantee.

Lack of deposit/savings

First Home Buyers who are unable to save the required home deposit can seek assistance from parents/family. While some parents will offer a cash loan/gift to make up the lack of deposit. Parents who do not have sufficient cash available to offer a dollar payment, can offer their child’s home loan lender an equity guarantee. This is where they go on the child’s mortgage as a partial guarantor applying the equity in their own home towards the deposit requirements of their child’s purchase.

In this scenario, an equity guarantor can actually help the borrower to get the mortgage application over-the-line.

Low income

Where a home buyer is unable to qualify for a mortgage to purchase the house of their choice, an income guarantee from a parent or a family member can make a difference. Lets say the borrower needs to be earning $80,000 to qualify for a mortgage, but they are only earning $65,000 – a family member can offer an income guarantee of $15,000 to make up the difference in order to achieve mortgage approval.

Bad Credit

Where a borrower has had their loan application declined because they have a bad credit history, having an income or an equity guarantor will be of no assistance. This is true even where the loan sought is a mortgage. To qualify for a mortgage approval in such circumstances, the potential borrower needs to possibly wait until their credit history improves, or approach a lender that specializes in Bad Credit Home Loans.

Personal and Payday Loans

When it comes to personal loans or payday loans, as the name suggests – these are personal borrowing products. These loans are assessed on a range of information including the applicant’s credit history, income, stability of employment,level of current debt and assets held. You will either qualify or you will not. Lenders will not accept income or equity guarantors to assist borrowers with a low income to qualify for such loans.

If you are having trouble qualifying for these type of loans, it may be a good idea to review your budget. Lenders who offer Personal Loans and Short Term Loans have significant experience and statistical data on income buffers needed to afford these loans. Chances are that you are indeed unable to afford the loans you are applying for, and if anything at all goes a little outside of plan, you are likely default on these loans.

 

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