What is a guarantee loan?
This is a loan guaranteed by a third party in the event that the borrower defaults. A guarantee loan is generally made if the borrower is an unattractive candidate for a loan.
It can also be described as a promise by one party (the guarantor) to assume the debt obligation of a borrower if that borrower defaults.
Getting the best from a guarantee loan:
Typically, student loans and business start-up loans are guaranteed loans.
A guarantee loan may also be backed by a government agency. It is also usually required when a business does not have a history of borrowing. With a personal guarantee, business owners sign an agreement saying that they are personally responsible for payment. In this case, if their businesses dissolve, they will be responsible for repayment.
One way to protect yourself is to request that only a portion or percentage of the loan be covered by the personal guarantee.
These days it’s not considered unreasonable to back your own loan 100 percent with a combination of a cash guarantee and collateral.
Student loans are also often considered to be guarantee loans.
In many cases, the student gets a co-signer for their loan and this individual is expected to have a good credit record. This individual also needs to be willing to pay the loan on behalf of the student if he/she is unable to do so. This may also result in favourable interest rates as the lender considers this loan to be less of a risk.
Individuals with poor credit records may also often benefit from a guarantee loan. The borrower will get a co-signer for the loan, which is likely to improve their chances of qualifying for a loan with a lender.