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What is a Guarantor Loan?

If you are in need of credit, but you either have an adverse credit history or have no history of borrowing money, a guarantor loan might be a suitable option. They are unsecured loans where a guarantor who commits to repaying the loan if the primary borrower fails to do so. This provides an additional layer of security for the lender, who is taking the risk of lending to someone with an adverse credit history.

We compare the Top Loan Providers:

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More About Guarantor Loans

Who can be a guarantor?

As guarantor loans are unsecured, you do not need to be a homeowner to qualify for a guarantor loan. However, the criteria for your guarantor is more stringent. In most cases, a guarantor needs to be a UK homeowner who is over the age of 21. In addition to being a homeowner, the guarantor should have enough equity in their property to cover the cost of the loan. The guarantor can be anyone the borrower knows (family, friends, etc).

The guarantor will need to provide the same information as the borrower, such as their credit history, employment records and bank statements. The decision regarding whether the application is accepted or not will be based on the employment status and credit history of both the borrower and the guarantor. Although most lenders require the guarantor to be a homeowner, there are some which do not, however, this is rare.

The Role of the Guarantor

Being a guarantor in itself does not have a negative impact on the guarantor's credit rating and if the borrower successfully keeps up with all of the payments, there is no need for the guarantor to be involved. The guarantor only becomes involved in the worst case scenario, i.e. if the borrower misses payments or defaults on the loan. If the borrower misses one payment, it is possible for the guarantor to cover this and then for the borrower to resume the repayments. However, if the borrower defaults on the entire loan, the guarantor becomes liable for it. As the guarantor is legally responsible for the money, they will encounter serious financial difficulties if they cannot cover the loan, which will have a negative impact on their credit rating and will lead to the straining of personal relationships.

Are guarantor loans expensive?

Although rates vary from case to case, and depend on numerous factors such as your credit history and employment status, the APR for guarantor loans is generally around 50%. This may seem high, but it is a much cheaper option than payday loans and other bad credit loans. In addition, guarantor loans enable you to borrow more money, for longer periods of time, than many alternatives. Guarantor loans enable you to borrow anywhere between £1,000 and £7,500, for a period of between 1-5 years. As the rates for guarantor loans are better than other loans aimed for people with poor credit ratings, they are a viable solution. In addition, they are also an opportunity to rebuild your credit score by keeping up with the payments, which will make it easier for you to obtain credit in the future. However, it is important to be wary of the fact that some lenders charge hefty 'up-front' and arrangement fees. When taking out a guarantor loan, be sure to look for these hidden fees, as they are increasingly common and can potentially be extremely expensive.

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