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How to Get a Guarantor Loan

A guarantor loan can help you access finance if you have poor or no credit history. Much like an unsecured personal loan, you will borrow a sum and then pay back fixed monthly repayments. Guarantor loans require a friend or relative to guarantee to repay the loan if you cannot.

If your loan applications have been turned down by a lender, or multiple lenders in the past — due to your poor or limited credit history — a guarantor loan can help you access the finance you’re looking to secure.

How do guarantor loans work?

Guarantor loans work in a similar way to unsecured loans. The key difference is that the loan provider will require a guarantee that they will receive repayments. This is where guarantors come in. As part of a guarantor loan application, a guarantor promises to make repayments where the borrower cannot, either on a monthly basis, or in full.

This is a legally binding contract for both the borrower and the guarantor, so careful consideration should be given by both parties before entering an agreement.

They are suitable for anyone with poor credit, no credit history or those on a low salary. A guarantor loan is a good option if you’ve previously been turned down for credit, as lenders are more willing to lend to those considered risky borrowers when their application is reinforced by a guarantor with a strong credit history.

Guarantor loans typically have higher interest rates than personal loans taken out by borrowers with good credit. Find out more about APR and what you need to know about it when considering a loan.

What is a guarantor on a loan?

A guarantor, as nominated by the borrower of a loan, agrees to guarantee repayment for part or the entirety of a guarantor loan if the borrower cannot.

  1. A guarantor must pay a borrower's debt if they default on the agreement
  2. The guarantor commits their assets (money) to repaying the loan if the borrower is unable

Who can be a guarantor for a loan?

Almost anyone can be a guarantor, as long as they meet the lender’s requirements. But, they should be someone the borrower trusts. Indeed, it is important that there is mutual trust between a guarantor and a borrower. The guarantor will need to trust that the borrower will do everything in their power to make repayments on time, and that they will be responsible with their finances.

On the other hand, the borrower will need to feel that they can rely on the guarantor to act on their behalf, when they can’t make a repayment.

Typically a guarantor is a family member or close friend that knows the borrower well enough to understand their financial situation, and trust that they will stick to a loan’s repayment schedule.

A spouse or partner can be a guarantor. Providers will want to see that you have separate finances, or a bank account in this instance.

Guarantor eligibility criteria

  • They must be over the age of 21
  • Have a good credit history
  • Meet the lender’s minimum income requirements
  • Have a UK address
  • Be able to make repayments when the borrower cannot

How to get a guarantor loan

Obtaining a guarantor loan is similar to securing a personal loan.

  1. Find a guarantor who is willing to support your application
  2. Compare guarantor loans
  3. Ensure you’re eligible for the lender’s criteria
  4. Consider other forms of lending for your situation, such as bad credit loans or loans from credit unions
  5. Apply for guarantor loans

How much can I borrow?

The amount you’ll be able to borrow depends on your financial circumstances. Your debts and credit history will be taken into account, as well those of your guarantor, to ensure both you and the guarantor have the ability to pay off the debt.

Guarantor loans are a way for lenders to mitigate their risk and each provider’s lending criteria will differ. Remember the provider may offer you less than you request, should they consider you to be a risky borrower, even with the addition of a guarantor.

How can I get a guarantor for a loan?

As someone who may have been refused credit through more traditional loans, you will need to ask a friend or relative to be your guarantor.

This is quite a favour to ask, as the guarantor will have to trust you enough to enter into an agreement that could see them have to repay the full loan amount themselves if you miss a loan repayment or default. If they themselves cannot pay on your behalf, your credit history and theirs could be negatively impacted, making it harder for them to take out credit in the future.

Because of this you’ll need to approach someone that knows your character extremely well. The more information you share with your potential guarantor the more likely they are to agree to support you.

Be open about your finances, let them know why you have been rejected for finance in the past and explain how you mean to make the repayments this time. By showing them you have carefully thought through how you intend to repay the loan, you’ll gain their trust.

It might also be beneficial to reveal what you intend to use the money for, why you need it and how you will budget your finances to ensure you can comfortably meet repayments.

Always approach the subject sensitively, and be prepared to accept an unfavourable response. It’s important to remember not to enter into a guarantor loan relationship lightly, as non-payment by either party can have serious financial repercussions for both.

If you are thinking of becoming a guarantor take a look at our complete guide to what you should consider before becoming a guarantor.

Pros and cons of guarantor loans

A guarantor loan allows those with poor credit, or financial circumstances viewed as riskier by a loan provider to acquire a loan. By sticking to the repayment schedule, a borrower can build their credit profile, to repair the damage past financial mismanagement has caused.

Pros Cons
  • Guarantor loans allow those with poor credit history, or lower income, to get credit
  • Historically available from specialist lenders, guarantor loans are becoming more widely available
  • Interest rates are lower than short-term loans and payday loans
  • The guarantor will have to make repayment if the borrower can’t, in part or in full, even if their financial circumstances change
  • If the guarantor cannot make repayments after the borrower has defaulted their credit score could be impacted
  • Non-payment by the borrower could cause mental and financial stress

Written by John Ellmore

    Published on 28-09-2020

John Ellmore co-founded Know Your Money in 2004 and is a company spokesperson for consumer finance issues. John is committed to providing clear, accurate and transparent financial information.

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