Guarantor Loans FAQ
What is a guarantor loan?
A guarantor loan is a form of unsecured loan, where another person takes on the responsibility of any accrued debt if the individual who originally took out the loan is unable to make repayments or misses repayments. This type of loan is generally regarded as a useful solution for those with a poor credit rating, or little credit history, as otherwise they may struggle to be accepted for a good loan product.
It's important to remember with guarantor loans that the interest costs can sometimes be quite high, and you will need to have a good relationship with your chosen guarantor, as they are risking the loss of their property and assets if you fail to make repayments.
What are the pros and cons of guarantor loans?
Guarantor loans are often aimed at people who might struggle to obtain a loan through traditional means - due to a poor credit rating, for instance. These loans often allow individuals to borrow a higher amount than they would be able to based on their financial history alone, and may even improve their credit rating.
Guarantor loans make it easier for individuals to obtain the finances they need and pay back their debts without resorting to other bad credit options. However, guarantor loans can be expensive, with higher APRs than other forms of personal loans and the impact on the guarantor themselves needs to be carefully considered.
Could a guarantor loan improve my credit rating?
If payments for your guarantor loan are made on time, your credit rating could begin to improve, or you may be able to build up a non-existent rating. Of course, if you don't make your repayments, you could suffer from an even worse credit rating.
Would I be eligible for a guarantor loan?
To be eligible for a guarantor loan, you'd need to be over 18 years old, and hold a UK bank account. You may also need to demonstrate to lenders that you can make repayments by showing you have a regular salary or income.
Who can act as my guarantor?
Almost anyone could act as a guarantor for your loan, so long as they aren't financially linked to you (such as a spouse). A guarantor might be a work colleague, friend, or family member.
For your chosen guarantor to be accepted by a lender, they will usually need a good credit history themselves, to be a UK homeowner, and be over 21 years of age. Guarantors will need to undergo a credit check, and provide bank details, proof of ID, and bank statements.
How much can I borrow with a guarantor loan?
The amount that you're able to borrow with a guarantor loan will depend on the lender that you choose, as well as your affordability - in other words, how much you can afford to repay each month based on your current income.
Other factors that might impact the amount you're able to borrow include the length of the loan term, and your relationship with the lender (i.e. whether you're a repeat customer).
How much interest will I have to pay?
The amount of interest that you'll need to pay on a guarantor loan will depend on the lender you choose, the amount that you borrow, and the terms of your loan. Your rates of interest will also change depending on your credit rating.
What happens if I default on a guarantor loan?
If you default on a guarantor loan, or you're unable to manage your payments, your guarantor will be required to pay instead. Your lender might also continue to chase you for the remainder of the loan, plus any interest, and if no-one makes repayments, then you and your guarantor may be taken to court.