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Glossary

To make sure you understand everything there is to know about guarantor loans, our glossary is here to help you make sense of all the key terms and how it relates to the application, funding and repayment process.

APR – Annual Percentage Rate is the standard measurement of financial products in the UK and overseas. Expressed as a percentage, it should include all costs as if the loan is taken out for an entire year. As it is used for financial services, it allows borrowers to make easy comparisons with other products. Read more about APR here.

Bank transfer – An electronic payment directly from one bank account to another. For guarantor loans, a bank transfer is how the funds are sent to a borrower’s debit account and also, how the borrower makes repayments to the lender.

Cooling off period – When a guarantor loan is funded, some lenders may send the monies to the guarantor first as a final verification step. The guarantor will be given a ‘cooling off period’ which typically lasts around two weeks where they can decide to proceed with the loan and transfer the funds to the main borrower, or they can send back the money to the lender without being charged any fees.

Continuous Payment Authority – This is a process used by most guarantor lenders in the UK as a way of setting up recurring payments from an individual’s debit card. This is different to a direct debit as the lender is the one that manually makes the collection, compared to a borrower that sets up the direct debit on their end. Read more about continuous payment authority here.

Credit score –Your credit score is a numerical score ranging from 0 to 999 and reflects your creditworthiness by gathering your past credit transactions and outstanding debts. Lenders will decide whether to give someone a loan based on their credit score. The borrower is able to be approved for a guarantor loan even if they have a bad credit score, however, their guarantor should usually have a good credit score to compensate for this.

Debit card – A card that allows individuals to transfer money to another bank account or make payment. Individuals will usually receive their salary from work paid into their debit account. For guarantor loans, the funds are usually sent to a debit card and repayments

Esign – This refers to ‘electronically signing’ the loan agreement during the application process. Rather than having to print out and physically sign the loan agreement, lenders allow borrowers and guarantors to verify their agreements electronically to speed up the process. Both parties can click on a specific link and enter a PIN code that is sent to their mobile phone in order to sign their agreement.

Fixed interest – This is where the interest charged on a loan, credit card or mortgage stays the same during the loan term. Guarantor loans typically have a fixed interest rate and only a few lenders state that the interest rate can change, known as variable.

Guarantor – A guarantor is the person who agrees to be part of the application and willing to make repayment if the main borrower defaults. The guarantor is typically a family member, friend, spouse or work colleague and is usually required to have a good credit score to be eligible. For more information, read the responsibility of a guarantor.

Loan amount – This is the amount you are able to borrow for a guarantor loan. The loans we feature range from £100 to £15,000 and how much you can borrow depends on several factors including your credit score, affordability and guarantor.

Loan term – This refers to the length of the loan. The guarantor loans on our website typically last between 12 months and 60 months and are repaid in monthly instalments.

Lump sum – This is a single payment of money. So when the lender approves a loan, they will transfer the entire loan amount in one lump sum.

Non homeowner guarantor loan – This is a guarantor loan only offered by some of the lenders we feature and means that the guarantor you choose does not have to be a homeowner to be eligible for a loan. Please see our page of non homeowner guarantor lenders for some examples.

Representative APR – This is the rate advertised by our lenders and is offered to at least 51% of successful applicants. The APR you actually pay may depend on your credit score, affordability and your guarantor.

Representative example – This is an example of what will you pay for your loan and will be available to at least 51% of applicants that are approved.

Representative example from Amigo Loans: Borrowing £5000 over 60 months, repaying £197.62 per month, total repayable £11,857.20. Interest rate 49.9% (variable).

Tenant guarantor loan – This is a type of guarantor loan offered by some lenders and means that borrowers can select a guarantor that is a tenant and lives in rented accommodation. Some lenders will specify that they only want the guarantors to be homeowners but other lenders welcome tenant guarantors if they have a strong employment status and credit score. Click here to see the companies that offer tenant guarantor loans.

Variable interest – This is how the interest rate that is charged for a loan changes during the loan term. Common for mortgages, there are few select guarantor lenders that have a variable interest rate, although they state that it is unlikely to change.