Guarantor Loans Explained
All your FAQs answered
If you want to borrow money but have a bad credit score, are young with no credit history or have recently started a job, you are likely to struggle to get any type of loan without a guarantor.
A guarantor will only really work if the two people involved fully trust each other, so think carefully about the relationship you have with your potential loan guarantor and remember - it's really important that the guarantor fully agrees to the terms and understands exactly what is expected of them.
Below, we fully explain exactly what having a guarantor loan entails, both for the borrower and the guarantor, by answering all your most frequently asked questions.
In this Q&A guide:
A guarantor loan is a type of credit agreement where a lender agrees to lend you money that is not usually secured against any collateral (i.e. owned property), but only if you have another creditworthy person sign the loan agreement (a guarantor) to confirm that they will pay the monthly loan repayments if you're unable to.
A guarantor loan is effectively a joint loan, as both the borrower and the guarantor can equally be held responsible for paying off the debt.
Just like any other type of loan, a guarantor loan allows you to borrow money over a certain term (number of years) and repay the loan via monthly instalments. However, unlike secured loans, there is usually a lending limit of £10,000 and a maximum repayment period (term) of 5 years.
Generally, consumers with bad credit and no collateral use a guarantor loan to borrow money.
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If you’ve applied for an unsecured loan and the lender requires a guarantor, once you have supplied the guarantor’s details, their financial history will be thoroughly examined by the lender who will want to ensure the guarantor can repay the loan in the event you can’t afford to.
A guarantor will usually have to complete an application form and provide the lender with the following:
Proof of ID (Passport or Driving Licence)
Proof of address (a recent utility bill or bank statement no more than 3 months old)
Proof of income and expenditure (bank statements and last 3 months’ payslips)
Credit history (the lender will conduct a credit check against the guarantor)
Proof of property ownership (if applicable)
If a guarantor is a homeowner, this will be looked upon favourably by a lender, but if they have a good income, manageable expenditure and good credit history, a lender will usually proceed with a loan regardless of whether the guarantor owns a property.
Once a guarantor has been approved, a loan offer will be made and both the borrower and the guarantor will then need to sign the necessary documentation.
Once the signed paperwork has been received by the lender, the loan amount will be paid out; sometimes, this will be paid to the guarantor’s bank account for the guarantor to pass on to the borrower - or, it can be paid directly to the borrower.
A guarantor is usually a family member or a very good friend who either completely trusts that you will always be able to repay your loan or if you aren’t able to, will be willing and able to pay the loan on your behalf.
Note: A spouse or partner can also be an acceptable guarantor as long as they have the right credentials and a separate bank account to the borrower.
Guarantor loans are a good idea if you have a poor credit history, are perhaps young with little to no credit history or have just started a new job, and desperately want a loan for no more than £10,000 over five years.
If you want to borrow more than £10,000 over a longer-term, there are guarantor loan alternatives like a secured loan (i.e. where you have collateral tied up in a property or car that can be relied on to pay off a loan, should you default on repayments).
If you do decide to get a guarantor loan, bear in mind that whoever agrees to be your guarantor will perhaps not expect they will ever have to pay for your loan and should you default on your loan repayments, this could negatively impact your relationship with your guarantor.
If you want a guarantor loan urgently, there’s an abundance of instant guarantor loans available from direct lenders all over the internet. Many of these guarantor loan direct lenders boast they can pay out a loan on the same day you apply - these are also referred to as ‘same day guarantor loans’, not to be confused with payday loans.
To find the best deals with the lowest interest rates, we strongly advise shopping around and comparing quotes from the direct lenders and all the major bank’s guarantor loans on offer, before committing to anything and signing on the dotted line.
Yes, usually you can get a loan with bad credit with a guarantor, but the guarantor must have a good credit rating and history, and will usually have to provide proof to the lender that they can afford to repay the loan should you default on payments.
Yes, guarantor loans very often attract much higher rates of interest than standard, non-guaranteed loans, typically ranging from 25% APR (annual percentage rate) to as much as 70% APR.
Note: Interest rates and APRs have subtle differences. APRs include any arrangement fees or other fees associated with a loan, whereas an interest rate is purely the percentage amount you will pay each year to borrow money. So it’s better to compare loans with APRs rather than using an interest rate.
An interest rate will be affected by how much you borrow and how long you take to pay it back (the term). Small loans with a short term will usually have a much higher APR than long-term loans that are spread out over a longer repayment period (term).
Above all, you really need to ensure you can actually afford the monthly repayments for a guarantor loan before asking someone to be your guarantor. Take a look at the table below for some idea of how loan amounts, terms and APRs can affect your repayments.
Examples of guarantor loan monthly repayments
Total Credit Cost
Loan Amount (loan + interest)
Typically, with a guarantor loan, you can borrow between £1,000 and £10,000; you cannot usually borrow more than £10,000 with this type of unsecured loan.
A lender will not just accept that a guarantor can’t or won’t make your repayments and may use a CPA (continuous payment authority) to take payments directly from a guarantor’s bank account.
If a lender cannot easily obtain money from a guarantor’s bank account, then normal debt collection procedures will ensue. This means your guarantor may have to deal with debt collectors and bailiffs, and/or solicitors and courts, or worse still, even lose possession of their home if your loan was secured against it.
As a result of you defaulting on your loan repayments and your guarantor not paying either, both of you will have a ‘default’ recorded on your credit files, making it difficult for either of you to obtain credit in the future.
Read more: What Affects Your Credit Score?
No, not usually; simply being a guarantor for a loan should not affect your ability to get a mortgage and should not be noted on your credit file, unless the borrower defaults. If a borrower defaults on their loan repayments and you are not able to pay the loan repayments on their behalf, this would affect your credit score and ultimately, your ability to get a mortgage.
If you’re worried about how your credit rating may affect you getting a mortgage, check out our guide: Can I get a mortgage with bad credit?
You need a good credit score to be a guarantor. What is considered to be a ‘good credit score’ varies between the four main credit reference agencies in the UK. Read our guide for more information: What is a good credit score in the UK?
No, as long as the borrower doesn’t default on their loan repayments. Being a guarantor is not noted on your credit file unless both the borrower and the guarantor do not keep up the repayments on a loan. Any default in repayment will be registered on the guarantor’s credit file (in addition to the borrower’s) which will significantly affect a guarantor’s credit rating and their ability to get credit thereafter.
For these reasons, it is vital that both the borrower and guarantor fully trust each other and that the guarantor is happy to adhere to the repayment terms should the borrower default on repayments at any time.