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Guarantor Loans

Guarantor loans are a common and effective way of borrowing if you have bad credit or a limited credit history. Lenders are more likely to lend you money if you have someone, either family or friend, with a good credit rating to ‘guarantee’ the money. This means that if you fail to make the payments, they will be liable to pay and so must understand the risks involved. In this guide you will find out how guarantor loans work, and see how they compare to other types of bad credit loans.

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What is a guarantor loan?

When attempting to borrow money, you might find that if you have a poor credit history so traditional banks and building societies will not lend to you. An alternative option in this situation is to get a guarantor loan. This is a type of loan where a family member or close friend agrees to pay your repayments if you can't honour them. This makes it much easier for the bank to lend you money because they know that they will get paid even if you aren’t the one to do so. It is essential when taking out a guarantor loan that you and your guarantor understand the risks involved.

Why would I need a guarantor loan?

There are a variety of reasons why someone would need a guarantor loan and not all of them are because of a poor borrowing history.

  • You could have started a new job or have a low salary.
  • It might be the case that you want to borrow with no credit history, and therefore banks do not know whether you are reliable or not.
  • The most typical reason is because of a low credit score. You may have missed repayments in the past and therefore the lenders do not trust that you won’t repeat this in the future.

The good news is that when you get a guarantor loan, the monthly repayments will help you build up your credit score so that you can borrow money more easily in the future.

How do guarantor loans work?

Before applying for a guarantor loan, it is important to understand the details of how it will work with the lender, because it’s markedly different from other types of loans.

  • These loans are typically given to someone after they already have been refused a loan and will have a higher rate of interest than a typical unsecured loan.
  • While they have joint liability, it is not the same as a joint loan and they will only be contacted if you fail to make the repayments.
  • The guarantor in the loan must be a friend or a family member but they cannot be financially connected to you, meaning that a guarantor can’t be your spouse or partner.
  • Although there are different criteria for different lenders, typically it will involve being over 21 years old, with a good credit record and financially stable.

What other options do I have if I have bad credit?

Guarantor Loans are one type of borrowing for people with bad credit. Here we'll take a look at some of the other options available.

Secured Loans

Guarantor Loans are unsecured because they do not require you to put up assets in case of failure to make repayments. Instead, you could get a secured loan which means one of your assets (typically your house, or your car) can be taken as payment if you fail to meet the terms of the loan. Secured loans are a common way of borrowing if you have bad credit, however it gives the lender the ability to repossess your house or car if you cannot make the payments.


If it’s a relatively small sum of money that you need, an authorised overdraft could be the cheapest way of borrowing money. Most banks will offer a 0% interest overdraft up to a limit, and it can therefore work out cheaper than bad credit loans. The key to overdrafts is to not go over the authorised or ‘planned’ limit as the costs can quickly add up.

Credit Cards

There are certain credit cards dedicated to people with a poor credit history. Most of these cards will have small limits and high interest, so again it is important to look at the terms and conditions before you use them.

Credit Union Loan

Credit Unions are non-profit cooperatives which lend money to their members. They will generally offer the best rates and are there as an alternative to banks for those in financial difficulty. To become a member, you will have to sometimes show a certain amount of savings. Credit unions are useful because they are set up to help their members and will therefore be much more understanding of your circumstances than for-profit banks.

Soft Eligibility Checker

Find out which loans you could be eligible to take out, without affecting your credit score

Michael Quinn
Author: Michael Quinn Last Updated: 10/07/2019
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