What is a guarantor loan?
If you’re struggling to get approved for a loan because you have a poor credit history, getting a loan with a guarantor is a simple way to get access to funds with the help of a friend or family member.
The main difference between a traditional loan and a guarantor loan is that a member of your family or friend will guarantee to repay the loan on your behalf if you’re unable to.
Guarantor loans might be a suitable option if you’ve recently moved to the UK, have no credit history, or borrowed money before but defaulted on your repayments.
How do guarantor loans work?
Guarantor loans work the same way as traditional loans, allowing you to borrow money from a lender and pay it back monthly, with added interest.
The only difference is that your guarantor will need to promise the lender that they’ll step in and repay what you owe if you can’t.
The lender will check the credit history and affordability of both you and your guarantor before approving a loan, so your guarantor must be someone who could afford to repay your loan if there was a reason you couldn’t. If your guarantor isn’t eligible, you won’t be approved for the loan.
Some lenders will give the funds from the loan to your guarantor once you’ve been approved. It is then up to them to transfer it to you or give it back to the borrower within a couple of weeks - this is known as a cooling-off period.
If your guarantor is happy to proceed with the loan terms, they’ll transfer the funds to you, and you’ll then be responsible for paying it back per the terms agreed, typically between 12 months and seven years.
It’s worth noting that guarantor loans typically charge APRs of 39-50%, making them more expensive than traditional loans.
Are guarantor loans easy to get?
It will depend on your circumstances, the lender’s eligibility criteria, and your guarantor's circumstances.
A lender will ask you questions to find out how much you can afford to repay and will check your credit history to find out how you’ve behaved as a borrower in the past.
The lender will go through the same process with your guarantor, so it’s crucial you have an honest conversation with whoever you ask to be your guarantor so you can be sure they’re the right the person to ask.
Each lender has its own set of rules - known as eligibility - to determine what kind of person they want to lend to. Some lenders are stricter than others, so it’s a good idea to use the Choose Wisely eligibility checker to find the providers who are most likely to lend to you.
Who can be a guarantor for a personal loan?
Nearly anybody can be a guarantor for a loan, with the exception of your husband or wife. If you’re married, lenders typically won’t allow your spouse to take on the responsibility of being your guarantor unless they have a separate bank account and your finances are separated.
Your guarantor needs to be aged 21 or over, have a good credit history and be able to afford the monthly repayments of your loan if you could not make them yourself.
It’s important to ask someone you can trust and feel comfortable talking about your finances with - you’ll need to find out yourself if your family member or friend has enough income to repay your loan if you couldn’t.
Typically guarantors are a parent, grandparent, sibling, other family member or good friend, but nothing is stopping you from asking a colleague or someone else you know well and trust.
When you apply for a guarantor loan, the lender will perform a credit check on your guarantor and ask for bank account details, ID and bank statements.
How does a guarantor loan affect the guarantor?
As a guarantor, your credit history will be viewed by the lender, which is usually a hard credit check which will be visible to other providers.
So long as the borrower keeps up the repayments, your credit score as the guarantor won’t be affected, but if you have to start repaying the loan on behalf of the borrower, this will be added to your credit report. If you default on the loan, your credit rating will be impacted negatively.
Helping someone to get a loan in this way could affect any future mortgage applications you make because mortgage providers will look into your income and outgoings, including any debts you’re guaranteeing.
If you have to pay your loved ones' loan for them, being a guarantor can have a negative impact when the mortgage provider adds up your existing debts to work out your affordability.
Becoming a guarantor might also mean you’re financially associated with the borrower and will appear on your credit report. Any future lenders checking your credit report will be able to see that you’re financially associated with this person and decide to check their credit history when they’re making a decision to lend to you.
Is a guarantor liable for unpaid loans?
Yes. If you default on your guarantor loan, it becomes your guarantor’s responsibility to repay it, which is why it’s essential to think carefully before asking anyone to be a guarantor for you.
How will your guarantor feel if they end up repaying money on your behalf? Would your relationship be damaged permanently?
If your guarantor is unable to repay, it could even mean their home is at risk, and they could face legal consequences.
What are the pros and cons of guarantor loans?
- As long as you keep up the repayments, your credit score could improve by taking out a guarantor loan.
- You might be able to borrow more than traditional loans if you have a poor credit history.
- You could get access to funds quickly - some lenders can provide same-day guarantor loans.
- If you have a poor credit history, guarantor loans can give you access to funds that you urgently need.
- If you cannot repay your loan, the friend or family member you’ve asked to be your guarantor will be left paying the loan on your behalf.
- Your guarantor could risk losing their home or face legal proceedings if they cannot repay the loan.
- Guarantor loans tend to have higher interest rates than standard loans.
- Low-interest guarantor loans are difficult to find - cheap guarantor loans are rare - expect to pay higher APRs than standard loans.
Will a guarantor loan improve my credit rating?
As long as you keep up repayments and repay the loan in full, a guarantor loan can help to improve your credit rating.
If you’re late with your repayments or you default on your loan, your credit score will suffer much the same as it would with other credit products.
Being a guarantor on a loan won’t affect your credit score; however, if the borrower can’t repay, and you’re also unable to repay the loan, this will show on your credit report and negatively affect your credit score.
Guarantor Loan FAQs
Being a guarantor on a loan means you’re guaranteeing the lender that you’ll repay the loan if the borrower is unable to. You should only agree to be a guarantor if you know the borrower well, trust them and can have an honest conversation about what would happen if you were left repaying their loan.
Yes, it’s possible to be a guarantor for more than one loan, providing you can afford to repay them both if the borrowers were to default on their loans.
Any lender will check that you can afford to guarantee a loan and look at any existing debts you may have, along with any loans you’re already guaranteeing.
If a lender doesn’t think you can afford the cost of living in addition to the repayments of more than one loan, you will be declined.
As long as the loan borrower keeps up the repayments, you shouldn’t have to worry about being approved for any loans you apply for yourself.
If the borrower fails to keep up repayments of a loan you’ve guaranteed and you become responsible to repay the loan, any future lenders will be able to see that you’re responsbile for existing debts and will take this into account when deciding whether or not you can afford to repay a new loan.
If you can easily afford the guarantor loan as well as the loan you’ve applied for, being a guarantor shouldn't affect your chances of being approved for a loan, but it will entirely depend on your financial situation, your income and the reliability of the borrower you’ve agreed to be a guarantor for.
If your guarantor cannot pay, the loan provider will take steps to recover the funds from your guarantor, which could include court action. Your guarantor’s home could also be at risk.
When a guarantor signs a guarantor loan agreement, they’re legally obligated to make sure the loan is paid off in full.
Being a guarantor for a loan is a big responsibility and should not be taken lightly.
No. Lenders won’t allow you to change guarantors because your credit history, employment status and affordability influenced the loan's approval.
If the borrower dies, you may still owe the lender. Check the terms and conditions of your agreement before committing to it.
A guarantor loan will likely be cheaper than other unsecured loans if you have a poor credit rating.
Having a guarantor demonstrates to the lender that somebody with a good credit rating trusts that you’ll be able to repay the loan. With the backing of your friend or family member comes lower borrowing rates.
No. Guarantor loans are not secured loans, which means lenders will make guarantor loans available to non-homeowners.
No - not necessarily. Lenders prefer guarantors to own their own homes, but they don’t have to.