Rates from 12.9% APR to 1625.5% APR.
Representative Example: £1,000 borrowed for 18 months. Repayment of 17 Months at £87.22 and final repayment of £87.70 The total amount repayable is £1570.44. Interest amounts to £570.44, an annual interest rate of 59.97%. Representative APR: 79.5% (variable)
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What are guarantor loans?
A guarantor loan is a type of unsecured personal loan that requires a third party, known as a guarantor, to co-sign the loan agreement and promise to repay the loan if the borrower defaults on their repayments. Guarantor loans are typically aimed at individuals with poor credit history or limited credit experience, who may have difficulty obtaining a loan from traditional lenders.
The guarantor is usually someone with a good credit score and a stable financial situation, such as a family member, friend, or colleague. By acting as a guarantor, this person provides an additional level of security for the lender, reducing their risk in case the borrower fails to make the required payments. If the borrower defaults, the guarantor becomes responsible for repaying the outstanding balance, interest, and any additional fees associated with the loan.
Guarantor loans often come with higher interest rates than traditional loans, as they are considered riskier for the lender. They can be a useful option for borrowers looking to improve their credit score or access credit when they might otherwise be unable to do so. However, potential guarantors should carefully consider the risks and responsibilities associated with co-signing a loan, as it can have significant financial implications if the borrower defaults.
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Frequently asked questions (FAQ)
A guarantor loan is a financial agreement that sees you borrow money from a lender with the inclusion of a family member, close friend or other figure committed to taking on your loan repayments if you become unable to make them yourself.
This personal element makes guarantor loans a potential option for borrowers with poor credit scores who are unable to secure traditional loans from an institutional lender. However, you need to keep in mind that if you are unable to repay your loan, it is your guarantor who will be required to make the repayments.
Before lenders relied on automated credit scores to judge the eligibility of a borrower, guarantors were often included as extra security.
Credit scores now enable traditional loans to be given directly and with confidence; however, guarantor loans remain an option for those borrowers with lower credit scores unable to secure traditional loans.
When applying for a guarantor loan, you will need to invite your agreed guarantor to submit their details at the same time. You and your guarantor will both go through eligibility checks including work, financial history and credit checks.
You will need to confirm that you are confident in being able to pay back your loan. Likewise, your guarantor will need to confirm they take full responsibility for your debt if you become unable to make your repayments.
Once everything is approved, your guarantor loan will be approved and your lender will transfer the loan amount agreed. Depending on the lender, your loan funds may first be transferred to your guarantor, who will then share them with you.
Guarantor loans can be used for anything, however they are most commonly relied upon as emergency solutions for unexpected expenditures such as car or home repairs and education-related costs.
Yes, guarantor loans are especially relevant for individuals whose poor credit score means they cannot secure a traditional loan. The presence of a third party guarantor you know personally provides the lender with the security they need to issue the loan.
It is important to recognise that guarantor loans may feature far higher interest rates and stricter terms than traditional loans. When considering a guarantor loan, ensure that you closely evaluate the specific terms, rates and fees to avoid encountering difficulty with repayments.
Absolutely – if your loan repayments are made on-time, each transaction could have a positive effect on your credit score.
However, if you do not make repayments on time then this will negatively affect your credit score – as well as the credit score of your guarantor!
Guarantor loans are often more accessible than traditional loans, so it’s highly likely!
To apply and be approved for a guarantor loan, the eligibility criteria you will have to meet include:
- Aged over 18
- A UK resident and UK bank account holder
- Able to provide proof of a regular source of income
- Demonstrating your plan to successfully make the repayments of your guarantor loan
Of course, you’ll also need to have a willing guarantor to join you in the application process and confirm they are willing to take on the responsibility of being your guarantor.
With all of these elements in check, you could be suited for approval in a guarantor loan application.
Each loan provider will have their own range of loan values. Generally speaking, you can expect to be able to borrow any amount up to £10,000 over a period of 1-5 years.
Whilst each lender will have their own eligibility criteria for guarantors, the general requirements include:
- Aged between 21-75
- Financially able and committed to taking over your repayments if needed
- Holding a relationship of trust with the loan borrower
- A strong credit record
- Has no financial accounts shared with you
- Is not your spouse or partner
- Has not been declared bankrupt in the past six years
If the guarantor does not possess a satisfactory credit record then the lender will not be confident in lending the money to a borrower with a lower credit record.
The lender will likely engage directly with the guarantor in-person or over the phone to ensure they are committed to and understand the implications of taking over loan repayments if necessary.
Anyone can be your guarantor, though in most cases your guarantor will be a family member or close friend not financially connected to you. In other cases, a guarantor may be a business partner or other support figure.
The importance when selecting a guarantor is that you possess a trusting relationship and are able to connect openly and often regarding the status of repayments. The guarantor should understand they are not simply vouching for your character – they are taking full legal responsibility to absorb your debt if you are unable to make your loan repayments.
Advantages of a guarantor loan include:
- Reliable option for borrowers with low or no credit history
- Fast approval often within 24 hours
- Can improve your credit score if loan terms are maintained and repayments are made responsibly
Guarantor loan disadvantages include:
- Significant financial commitment for you and your guarantor
- Poor handling of repayments will put strain on your relationship with your guarantor
- Higher interest rates and stricter repayment terms than standard loans
- Missed payments will negatively affect the credit scores of both you and your guarantor
When you take out a guarantor loan, your guarantor assumes full legal responsibility for your repayments if you are unable to make them.
If your guarantor is then unable to make the repayments themselves, they could receive penalty fees, have their assets repossessed or be taken to court.
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