What is a guarantor loan?
With a guarantor loan, a family member or friend agrees to take on your monthly repayments if you can’t pay back the loan. It’s usually a type of unsecured loan, although some banks will consider secured loans for those with a guarantor.
A guarantor loan could help if you’re struggling to get a personal loan, perhaps because you have a poor credit score or no credit history at all.
You can’t compare guarantor loans with Compare the Market.
How do guarantor loans work?
Guarantor loans work in the same way as a personal loan: you borrow money from a lender then pay back what you owe, plus interest, in monthly instalments. The difference is that your guarantor will have to make the loan repayments if you can’t.
These are the steps you'll need to take if you want a guarantor loan:
1. Find your guarantor
Choose someone you trust. You need to feel comfortable discussing your finances with your guarantor, so it will typically be a family member or close friend.
2. Apply for the loan
When you apply for a loan with a guarantor, the lender will carry out a hard credit check on both of you. This is to assess how responsible you and your guarantor are with your finances, and to make sure the guarantor should be able to pay back the loan if needed. The lender will need the guarantor’s bank details and proof of ID.
3. Receive the funds
Depending on the lender, it will sometimes be the guarantor who initially receives the loan amount. Your guarantor will then have a ‘cooling-off’ period – usually around 14 days – during which they can choose whether to go ahead with the loan agreement and give you the money, or return it to the lender.
4. Make the monthly repayments
If your guarantor is happy to proceed, you’ll receive the funds and start making the monthly repayments according to the terms of the loan.
What are the pros and cons of a guarantor loan?
Advantages of a guarantor loan
Could be a good option for those with a poor credit rating or no credit history
A guarantor loan can be used to cover emergency costs, such as a boiler breakdown, or bigger expenses, such as a wedding, buying a car or home improvements
If you keep up with the repayments, having a guarantor loan could help improve your credit score. And a better credit score could improve your chances of successfully applying for credit in the future. It could also unlock lower rates of interest, which could make borrowing cheaper.
Disadvantages of a guarantor loan
You’re unlikely to find a guarantor loan with a low APR – interest rates are typically higher than for a standard personal loan
You’ll need to be totally transparent with your guarantor about your financial situation
If your guarantor has to step in and make payments on your behalf, it could negatively impact your credit rating even further. It could also strain the personal relationship you have with your guarantor
It’s a major financial commitment for you and your guarantor. Both of your credit scores could be damaged if the loan isn’t paid back on time.
Who can be a guarantor for a loan?
The criteria will vary among lenders but your guarantor will usually need to be:
21-75 years old
A UK resident
A customer at a UK bank with an active account
Receiving a regular income
A homeowner
Independent of you and not share any financial accounts with you
In good financial health, have a good credit rating and be able to afford to make the loan repayments if you can’t.
Who can apply for a guarantor loan?
To apply for a guarantor loan, you’ll need to meet certain eligibility criteria. You’ll typically need to be:
Over 18
A UK resident
A UK bank account holder
Receiving a regular source of income
Able to prove that you have a plan to make your repayments.
You’ll also need to have someone to act as your guarantor.
How much can I borrow with a guarantor?
The amount you can borrow with a guarantor loan very much depends on your financial circumstances. When you apply for a loan, the provider will consider:
Your income
Your credit score
Any existing debt you have
Whether you’re securing the loan against your home (also known as a secured loan)
Why you’re applying for a loan.
If lenders still see you as a high risk – even with a guarantor – they might not be willing to lend you as much as you’d hoped for.
Our loan calculator gives you an idea of how much you could borrow when comparing loans. It can also tell you how much your monthly repayments could be.
Loan calculatorIs a guarantor loan right for me?
As with any other type of borrowing, a guarantor loan needs careful consideration. But it merits even more thought than usual because it involves another person and their finances.
You need to be confident that you can keep up repayments without your guarantor having to step in. Remember, their intervention should be seen as a last resort.
You should also consider more than just the financial implications. If you have problems paying off your debt, it could put a strain on your personal relationship.
Before deciding whether a guarantor loan is the best option for you, it’s worth considering the alternatives.
What are my options if I can’t find a guarantor for a loan?
A guarantor loan isn’t your only option if you have bad credit. You could consider these alternatives:
Credit cards for bad credit
Sometimes known as credit builder cards, these are aimed at those with a poor credit record or no credit history at all.
On the downside, credit cards for bad credit typically have low borrowing limits and high interest rates. But on the plus side, if you make your repayments on time and stay within your credit limit, you could improve your credit score and eventually be accepted for products with better terms.
Arranged overdraft
This can be useful for a short-term cash crisis, allowing you to cover unforeseen expenses. An arranged overdraft lets you borrow money up to a pre-approved limit. Some banks offer interest-free overdraft buffers, which let you go overdrawn by a small amount without paying interest.
Borrowing from family or friends
If you’re thinking about borrowing from a close friend or family member, it can be a sensible idea to put your agreement in writing to avoid potential fallouts further down the line.
Credit union loan
Credit unions are not-for-profit financial co-operatives that offer loans to members, often at more affordable rates than you might get from a bank. They might be helpful if you’re having trouble getting credit elsewhere.
To see which loans you’re most likely to be accepted for before you apply, use our loan eligibility checker. It’s a soft search, so won’t affect your credit score in any way.
Try our eligibility checkerCompare the Market Limited acts as a credit broker, not a lender. To apply you must be a UK resident and aged 18 or over. Credit is subject to status and eligibility.
FAQs
Will a guarantor loan affect my credit score?
Applying for a guarantor loan will involve a hard credit check, which will temporarily dent your credit score. But if you keep up with your guarantor loan repayments, paying on time every month could help to improve your score.
If you can’t meet your repayments and your guarantor has to step in, it’s likely to damage your credit score.
What happens if I can’t make my loan repayments?
If you can’t keep up with the repayments, the responsibility for the debt passes to your guarantor. They’ll have to make the repayments for you as they’re jointly liable for the loan.
If you think you won’t be able to meet your monthly payments, it’s important that you speak to both your lender and guarantor. The sooner you do this, the sooner you can come to an arrangement and your guarantor has time to prepare.
What happens if my guarantor can’t make my repayments?
If your guarantor can’t keep up with the repayments when called upon, or changes their mind and refuses to help, they’ll be breaching the terms of your loan agreement. This means the lender can start debt collection proceedings, and your guarantor could have their assets repossessed or even be taken to court.
Plus, non-payment of the guarantor loan will be recorded on both your credit files.
Does being a guarantor affect your credit score?
If you’re acting as a guarantor for someone else’s loan, and that person repays the loan themselves, your credit score won’t be affected.
But if you’re called on to help repay the loan, keeping up with those repayments on their behalf could see your credit score improve. If you can’t keep up with the repayments, then you’ll almost certainly see your credit score fall.
Can I stop being a guarantor for a loan?
Once you’ve signed the loan agreement and the funds have been paid out, you can’t back out of being a guarantor (unless the lender offers an initial cooling-off period and you're still in it).
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