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Want to borrow money but have poor or limited credit history? Struggling to be approved for other types of finance? If you can have a family friend or friend vouch for you, you might be able to take out a guarantor loan.
As with a standard personal loan, you’ll be responsible for making monthly repayments for the full term. But if you fall behind, your guarantor will pick up the slack, making the payments. Your guarantor needs to be fully aware of the financial obligations of signing onto a loan with you. But if they have confidence in your ability to make the payments, a guarantor loan can be a good way for young people and those with bad credit to borrow.
To find the best rates and terms on guarantor loans, compare as many offers as possible. Comparison sites like ours make this process quick and painless.
Guarantor loans are a type of unsecured loan guaranteed by third party, usually a family member or close friend of the borrower.
The presence of the guarantor gives the lender more confidence that they’ll be repaid. They therefore might approve borrowers they might otherwise reject as too risky, including those with poor or minimal credit histories. Guarantor loans are a practical credit option for young people or those with bad credit. In fact, lenders may require a guarantor if the applicant has a poor credit rating or is borrowing for the first time. And with consistent repayments, these loans can help those people build or repair their credit files.
When seeking out a guarantor loan, it’s best to seek offers from a range of providers. But filing separate applications with lenders is not only arduous, it can harm your credit score. Lenders generally run hard checks on applicants, which leave a mark on credit files. Rack up enough credit searches and lenders will grow concerned that you’re looking high and low for credit and be wary of lending you money.
We offer a way around this, giving you access to personalised loan quotes for you, without the need for payment or time-consuming applications and, crucially without leaving a mark on your credit report. A soft or quotation credit check will be run to find you loan offer, which won’t impact your credit file and score. Our guarantor loan comparison service is completely free and you’re under no obligation to sign up for any loans you’re shown.
To compare guarantor loans, you’ll first need to supply information about yourself and your prospective guarantor, including names, addresses, employment details, and financial information. You’ll then be shown a list of loan offers, with representative APRs and loan amounts, for you to choose from, subject to lender criteria.
Find out which loans you could be eligible to take out, without affecting your credit score
You can usually borrow between £1,000 and £10,000 with a guarantor loan. Loans are repaid, plus interest, in monthly instalments over the term of the loan, usually one to five years.
Because they allow people who might otherwise not be able to obtain credit to borrow, guarantor loans are sometimes classified as a type of ‘bad credit loan’. That means they come with a higher interest rate than other types of personal loan and can be a more expensive way to borrow. Guarantor loans usually have APRs of between 11% and 50%. But the rate you personally receive will depend on the credit score and personal circumstances of you, the borrower, and your guarantor. However, guarantor loans usually come with fixed interest rates, so the amount you repay each month will remain constant.
Some lenders transfer the funds to the guarantor rather than the borrower. The guarantor will then need to send the funds to the borrower.
Guarantors are typically parents or other family members or friends or colleagues. Technically you can use almost anyone who meets the following criteria:
The exact criteria for each lender will vary. But the most important thing is that the guarantor understands that they will be responsible for the repayments on the loan if you fall behind.
The borrower must also be at least 18, hold a bank account, and typically be in work.
If you die before paying off the loan, your guarantor will become responsible for the repayments. It’s crucial both you and your guarantor read the terms and conditions of any loan product, to fully understand your obligations and responsibilities, even under the worst and most unforeseen scenarios.
If the borrower fails to make payments, you will be financially liable for them. If you fail to make the repayments, you can be subject to the same legal action from the lender that the borrower is. For example, the lender might apply for a charging order to force the sale of your home to get the money they’re owed. Additionally, if you and the borrower default on the loan, your creditworthiness will be damaged.
Before you agree to be a guarantor for a loan, you should take the following precautions.
Once you’ve signed the loan paperwork as a guarantor, you cannot back out. For as long as the loan lasts, you’re responsible for the repayments if the borrowers defaults. The exception is during the 14 day cooling off period that comes with all personal loans. Within this time frame, you and the borrower can cancel the loan and return the funds.
Simply being named guarantor will not show up on your credit report. However, some lenders may run a hard credit check on you as part of the application process. These searches will appear on your credit file and if there are repeated searches in a short period of time your credit score can suffer. Many loan comparison sites run soft checks on the credit of both the borrower and guarantor, however, and these won’t appear on your credit report.
Additionally, if the main borrower defaults on the loan and you also fail to make repayments, your credit file will be impacted. It’s yet another reason you should only agree to guarantee the loan of someone you’re confident can make the repayments.
*If a lender has pre-approved for a loan product this means they have conducted a soft search of your credit file and there is a good chance they will lend to you. Pre-approval does not guarantee you a loan. All loans are subject to lender and provider requirements and approval.