Guarantor Loans

What is a guarantor loan?

These loans can be an option if you have bad credit or little credit history. You may have no credit history at all. Or you may have bad credit from missed payments, defaults, or too many loan applications.

One key benefit is the chance to build a good credit score. If you keep up with your repayments, it shows lenders you can manage debt.

How do guarantor loans work?

Guarantor loans work like any other loan. You borrow money from a lender and pay it back in monthly instalments. The only difference is that a third person, your guarantor, is part of the deal. They agree to make your payments if you can't. Both you and your guarantor have a 14-day cooling-off period to cancel if you change your mind.

Who can I get to be my guarantor?

Pick someone you trust. Your guarantor should be someone you feel happy talking to about money. This is often a parent, sibling, or close friend. Others may also qualify, such as a colleague, as long as they meet the lender's criteria.

Generally, a guarantor must:

• Be at least 21 years old, and many lenders also set an upper age limit of around 75
• Live in the UK
• Have a close relationship with you
• Have a good credit history

A suitable guarantor must also be able to afford the loan repayments if needed.

As part of the application process, the lender will ask for proof of identity, bank statements, and a credit check.

Who can apply for a guarantor loan?

Each lender has its own rules, and not all direct lenders offer guarantor loans.

Most ask that you are:

• Aged 18 or over
• A UK resident
• Have a UK bank account
• Show that you have a regular income and can afford the monthly repayments (even if your credit score is poor)

As part of the application process, the lender will ask for proof of identity, bank statements, and a credit check.

These loans can suit people with bad credit. You may have a low credit score. You may have past missed payments or a CCJ. They can help if you have a thin credit history, too.

Pros of a guarantor loan

A guarantor loan can help you borrow when your credit is poor. But it is not right for everyone. Here are some pros to consider before you apply.

• You can be considered for a loan even with bad credit. Most mainstream lenders may turn you down if your score is low. But a guarantor gives the lender extra security. This makes them more likely to say yes.
• If you pay on time each month, it helps build your credit score. Over time, this can open the door to better interest rates. You may also be able to borrow more than you could on your own.
• Interest rates are often lower than payday loans or doorstep lenders. Monthly payments are fixed. So you know what you owe each month. There are no surprises.
• Many lenders give you an online application and an instant decision. They may even be able to pay out the same day. However this varies between lenders. This helps if you need cash quickly. Both you and your guarantor have a 14-day cooling-off period to cancel if you change your mind. With some lenders, funds may first be sent to the guarantor's bank account, giving them the opportunity to return the money to the lender if they have any concerns.

Cons of a guarantor loan

• The biggest risk is to your guarantor. If you can't pay, they must. The lender can chase them for the full debt. It is a legal duty, and there are legal considerations because they are taking on a binding financial commitment.
• Rates are still higher than a standard repayment loan. If you already owe money, a new loan can make things worse.
• It can put strain on your bond with your guarantor. Money problems cause tension. If they end up paying your debt, it could damage the trust between you.
• Missed payments hurt your credit score. They can harm your guarantor's credit rating, too. If the loan is secured against an asset, your guarantor could lose their home or other property if repayments are not made.

Is a guarantor loan right for you?

Think hard before you apply. Make sure you can afford the monthly payments. Talk to your guarantor. Be open about your finances. If you both know the risks and are happy to go ahead, a guarantor loan can be a useful tool for short-term needs, depending on your personal circumstances.

Need free help with debt? Contact StepChange, Citizens Advice, or National Debtline for free, private support.

How many guarantor loans can you have?

You can have more than one guarantor loan. But each lender has its own rules. Having more than one loan means more debt to manage each month.

Before you apply for another loan, take a close look at your income. Check the fees and the repayment period. Make sure you can afford the extra cost. There are some things to check before you apply for a loan.

If you plan to use the same guarantor, talk to them first. They need to be happy backing more than one loan for you. Be open about what it involves. This helps avoid problems down the line.

Alternatives to guarantor loans

A guarantor loan is not your only choice. If you have bad credit or a low credit score, there are other ways to borrow money. Some cost less. Some carry less financial risk. Look at all your options before you apply.

Personal loans for bad credit

Some lenders offer a personal loan for people with a poor credit score. You do not need a guarantor. These loans are often for smaller amounts. The interest rate will be higher than a standard loan. But if you keep up with repayments, it helps build your credit history.

Debt consolidation

If you have many debts, a debt consolidation loan rolls them into one. You make one monthly payment instead of many. This makes your finances easier to handle.

A longer loan term means you may pay more in total. The interest rate may be higher if you have bad credit. But one clear payment each month can be easier to manage.

Secured loans

A secured loan uses an asset as security. This is often your home or car. The lender has extra security. So you may get a lower interest rate. You may also get a higher loan amount.

But there is a real risk. If you can't keep up with repayments, you could lose the asset. If your home is used, you could lose your home. Think hard before you choose this. Only borrow what you can afford to repay.

Borrow from family or friends

A friend or family member may lend you money. There is no interest. No credit check is needed. It can be the cheapest way to borrow.

But money can cause tension. Be clear on how much you borrow and when you will pay it back. Put the terms in writing. This helps protect the bond between you.

FAQs

Can I get a guarantor loan with very bad credit?

Yes. These loans are for bad credit. Your guarantor adds extra security. Guarantor lenders still check whether the loan is affordable for both parties, and the lender still does a credit check and affordability checks on you both.

Can my spouse or civil partner be my guarantor?

In the UK, your spouse or civil partner generally cannot act as your guarantor for things like a private tenancy or an unsecured loan. Because you are legally and financially linked, lenders and landlords require a guarantor who is an independent third party to provide a separate, reliable safety net.

What if I can't make my repayments?

If you miss a payment on a guarantor loan, your guarantor becomes legally responsible for the full debt. If neither of you pays, both of your credit files will be harmed. The lender can take court action to get the money back.

Can I get a same day payout?

Yes, it may be possible to get a guarantor loan with a same day payout with some lenders. However, please note that payout times vary between lenders.

Can you remove yourself as a guarantor on a loan?

Once you've signed an agreement and the loan has been paid out, you can't remove yourself as the guarantor.

Can you change a guarantor for a loan?

You can only change your guarantor during the loan application process. Once the loan has been paid out, you can't change your guarantor.

Summary

A guarantor loan can help a borrower with bad credit access funds. A friend or family member can act as a guarantor. This gives the lender extra security. They can also be used for costs such as home improvements.

Before you apply, be sure you can afford the monthly payments. Talk to your guarantor. Make sure they know the risk they are taking.

Only borrow what you need. Repay on time. This builds your credit history. It may open the door to better deals.