Guarantor Loans - NerdWallet UK

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One of the options for borrowers with bad credit scores is a guarantor loan. If you are lucky enough to have a close friend or loved one who is willing to help you obtain a loan, you will want to find a product that works for both of you.

If you are the borrower, the loan will be in your name and you will be responsible for meeting the repayments. However, your guarantor will be waiting in the wings, as they will be legally required to make the repayments if you struggle to pay back the loan.

Finding the right loan is perhaps even more challenging when there are two people involved in the borrowing process. Your guarantor may want to check factors such as interest rates and late payment fees, for example. Another issue to consider is that some loans require the guarantor to be a homeowner.

Read on below to find out everything you need to know about how guarantor loans work, who can be a guarantor for your loan, and how to go about comparing products and applying for this type of loan.

As current market choice for guarantor lenders is low they will also provide results for other types of loans. Ensure you carefully review your results and fully understand the terms and conditions of any loan before proceeding.

What is a guarantor loan?

A guarantor loan is a form of loan where the borrower is backed by a guarantor. This means that if the named borrower misses a loan repayment, it must be paid by the guarantor.

It potentially allows you to secure a loan if you have a bad credit score, or if you haven’t been able to build up a credit profile.

How does a guarantor loan work?

Guarantor loans work just like any other loan – you borrow a certain amount of money from a lender, then pay it back in instalments, with interest.

However, because these loans are available to people with bad credit, no credit, or those on a low salary, both you and your guarantor will need to sign up for a guarantor loan.

When you apply for a guarantor loan, it is a legally binding contract that the debt will be paid, if not by the borrower than by the guarantor. This means that your guarantor will need to prove they can afford to pay back the loan in order for your application to be successful.

This is also why it is so important to think carefully before asking someone to be a guarantor, as well as when agreeing to be a guarantor.

Depending on the terms of the contract, this may even mean that the loan is paid first to the guarantor, rather than you the borrower.

Can I get a guarantor loan with bad credit?

If you have a weak credit score, it is possible to get a guarantor loan, as long as your chosen guarantor has a good credit rating.

From the perspective of the lender, the presence of a guarantor reduces the risk of lending to someone with a bad credit history.

Can you apply for an IVA with a guarantor loan?

Yes, a guarantor loan can be included in an IVA (Individual Voluntary Agreement). This will legally protect you, the borrower, from the loan company. Your guarantor will not be protected in the same way.

However, the guarantor loan provider may vote to block your IVA. You might then need to discuss the debt with your guarantor, and if they can take responsibility for the remaining payments of the guarantor loan.

As the guarantor, you can also include the guarantor loan in your own IVA. In this instance, the original borrower wouldn’t be protected in the same way.

» MORE: What happens if I can’t make my loan repayments?

What if I can’t make my repayments?

If you as the borrower cannot make your repayments, then it is the responsibility of your guarantor to make those repayments on your behalf.

Who can be a guarantor for a loan?

The rules for who can be a guarantor are stricter than for the borrower of the loan, and vary slightly from lender to lender. Your guarantor:

Must be over 21 (though some lenders have a higher minimum of 23), and several have an upper age limit of 75 – that is the maximum age a guarantor can be at the date the loan term ends.
Must have a good credit history.
Must be a permanent UK resident.
Must be able, and willing, to make loan repayments if you cannot.

Due to the criteria and responsibility involved, it is important to pick your guarantor carefully, and discuss the details of the loan with them in full.

» MORE: What to consider before becoming a loan guarantor

Does my guarantor have to be a homeowner?

The answer depends on your lender – some will require your guarantor to be a homeowner, others will not.

When choosing your guarantor, you should be aware that if they are a homeowner you may be able to get a larger loan with a lower interest rate.

Can a retired person be a loan guarantor?

Yes, a guarantor can be retired, so long as they have regular income in the form of a pension or benefits, and still meet all of the lender’s other affordability criteria — though lenders often have an upper age limit of 75 when the loan term ends.

Can you be a guarantor for two loans?

Some lenders may still approve a guarantor loan even if the guarantor is listed on another loan. However, other lenders may prevent you from being a guarantor on a new loan if you are already connected to an existing one.

Can I list my spouse/partner as a guarantor?

Technically your spouse or partner can act as your guarantor.

However, your guarantor cannot be linked to you financially. This means if you have a joint account with your spouse or partner, they would be unable to act as your guarantor.

If you are not linked financially, and your spouse/partner meets the other criteria, then they may be able to act as your guarantor.

What checks are done on a guarantor?

When applying for a guarantor loan, the guarantor is subject to a credit check. Some lenders will carry out a soft search, which will not affect your credit score. However, some may carry out a hard search, which will.

What stops you from being a guarantor?

There are a few different scenarios that may stop you from being a guarantor for a loan. These include:

if you have a bad credit history
if you share a bank account with the person taking out the loan
if you are younger than 21 years old, or older than 75 (depending on the lender)
if you do not own a home (depending on the lender)
if you are already a guarantor on a different loan (depending on the lender)

Can a guarantor be removed from a loan?

It is very hard for a guarantor to be removed from a loan once agreed. So you should be 100% sure you are comfortable with being a guarantor, and resist pressure to become a guarantor if you have any doubts.

There will typically be a 14-day, cooling-off period once the loan agreement has been signed, where the borrower can cancel the loan. So if you are having doubts as a guarantor, then discuss this option with the borrower.

If you can find a suitable replacement guarantor, it may be possible to remove the initial guarantor. This decision will be up to your lender.

Guarantor loan eligibility criteria

Although most of the criteria for getting a guarantor loan is linked to the guarantor themselves, there are certain requirements for the borrower. For example:

You must be over 18 or 21, depending on the lender.
You must be a permanent UK resident at the time of application.
You need a UK bank account, direct debit capability and a debit card.
You need to be solvent, i.e. not bankrupt or in an IVA (individual voluntary arrangement) or debt management plan.

Advantages and disadvantages of guarantor loans

It is always important to weigh up the advantages and disadvantages of any financial product before applying.

Benefits of guarantor loans

If you have a trusted, eligible guarantor in your life, then depending on your situation a guarantor loan comes with a number of benefits. These include:

Access to a loan regardless of whether you have bad credit, no credit, or a low income, providing you meet the lender’s affordability checks. This includes if you have been previously rejected by other lenders.
Lower interest rates than on other bad credit loans and payday loans.
The chance to improve your credit score if you keep on top of your repayments and show you are a trusted borrower.
The ability to pay the loan off at any time. Some lenders will charge a fee for paying off the full debt early.

Risks of a guarantor loan

You should carefully consider your options before getting a guarantor loan for the following reasons:

While interest rates can be lower than for other products for those with bad credit, they are higher than for other types of personal loans.
If you are unable to repay the loan, your guarantor will have to, even if their own financial circumstances change.
If you are unable to make the repayments, and your guarantor cannot either, it will affect the borrower and guarantor’s credit score.
If you default on the loan, it could put a strain on your relationship with your guarantor.

How much can I borrow with a guarantor loan?

You can typically borrow between £1,000 and £10,000 with a guarantor loan.

However, some lenders may allow you to borrow as little as £500, while others may allow you to borrow more than £10,000.

How much you can actually borrow will be down to the financial strength of your chosen guarantor, and your ability to afford the repayments.

Do guarantor loans have higher interest rates?

Due to the risk associated with guarantor loans from the perspective of the lender, the APR will be higher than for other unsecured personal loans. However, there are ways to reduce the APR on your guarantor loan, namely if your guarantor is a homeowner.

How to apply for a guarantor loan

When applying for a guarantor loan, you need to make sure that you have a UK address and bank account.

You don’t actually need to have a guarantor when you first apply for a guarantor loan. However, arranging one beforehand will speed up the process.

The application process will involve you selecting the loan amount and term, submitting your personal details, and naming your chosen guarantor.

Both you and your guarantor will be subject to affordability checks, including details of regular income, and all outgoings, such as rent or mortgage payments, bills and living costs. These checks may be conducted over the phone.

You will also both be subject to a credit check. For the borrower, this is to confirm they are not bankrupt or insolvent – a bad credit score won’t impact your ability to borrow.

For the guarantor, this is to confirm they have a good credit history. This check will not leave a mark on their credit report, nor will it affect their credit score as long as the lender performs a soft search.

Although this sounds like a lot of steps, guarantor loans can sometimes be approved within an hour of the application, often with a payout on the same day.

What happens if I get turned down?

Firstly, try to see whether the lender has offered an explanation for why you were turned down.

Often, it will be due to your guarantor failing to meet the lender’s eligibility checks.

If this is the case, you can try to find a more suitable guarantor – ideally one that is a homeowner – and once again apply for a guarantor loan.

Alternatively, you may also want to consider applying for a smaller loan, and/or with a shorter term.

Why you should compare guarantor loans

Taking out a loan is a big decision. And with guarantor loans, you want to feel confident you have got the best deal not only for yourself, but your guarantor as well. That is why it is so important to thoroughly compare your options before applying.

When comparing guarantor loans, you should pay attention to:

the representative APR of the loan
the minimum and maximum terms of the loan
the minimum and maximum amounts of the loan
whether the borrower and/or the guarantor must be a homeowner

Alternatives to guarantor loans

There are a number of alternatives to a standard guarantor loan.

Homeowner guarantor loans

If your guarantor is a homeowner, you may want to consider applying specifically for a homeowner guarantor loan, as you might be able to borrow a larger amount at a lower rate.

No guarantor bad credit loans

If you can’t find an appropriate guarantor, then you could look into a bad credit loan that doesn’t require a guarantor.

Secured bad credit loans

There are other bad credit loans available, including secured bad credit loans where you can use your property as a security against the loan.

Debt charity information

If you are struggling with debt, seek advice from one of these debt advice services:

When looking for a guarantor, you should ask someone who you trust and feel comfortable talking to about your finances. Typically, this would be a family member or close friend.

They need to have a good credit history and be financially stable. Ideally, they would also be a homeowner.

However, becoming a guarantor is not something to be done lightly. If you are asked to become a guarantor, you should make sure you fully consider whether:

You can afford to repay the debt in full, even if your own personal finances change in the future.
The borrower is in a financial position to repay the loan they have requested over the specified period.
The borrower is responsible and can be trusted to make repayments on time.
The borrower definitely needs the loan.
You are willing to add a financial element to your relationship with the borrower.

If the borrower makes every payment, and pays off the loan in full, then there is no impact on the guarantor.

However, if the borrower can’t make a payment, or can’t pay off the loan in full, then it becomes the legal responsibility of the guarantor.

If the guarantor then can’t make those payments, it may well negatively affect their credit score. The debt could also be passed on to a debt collection agency, and may lead to legal action against the guarantor. It is also important to be aware of the potential strain any financial difficulties could cause between you and your guarantor if you cannot repay the loan.

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