What is a guarantor loan?
A guarantor loan differs from a ‘standard’ loan in that, rather than applying to borrow the money alone, you apply with somebody else acting as your ‘guarantor.’
The guarantor will be responsible for stepping in and making your repayments if you’re unable to.
While a guarantor could provide you with peace of mind that your repayments will be made should your financial situation change, you should never apply for a loan unless you’re confident that you’ll be able to afford to make your repayments on time each month.
Things to think about before searching for a guarantor loan
A guarantor loan is a serious financial commitment, not only for you, but also for the person acting as your guarantor. It’s vital that both you and your chosen guarantor understand exactly how a guarantor loan works, and the possible risks involved.
- Explore all the options that may be available to you before you decide to search for a guarantor loan. How urgent is your need for money? If there’s no particular rush, could you save up instead? Alternatively, is borrowing from friends and family a possibility? A loved one may agree to lend you the money with a lower interest rate than an official lender. They might even agree to not charge you any interest at all. Before borrowing money from somebody you know, you should both agree on a clear repayment plan and it’s a good idea to get this in writing.
- A loan, like any financial product, will affect your credit score. If you make your repayments on time each month, you could see an improvement in your score, provided you’ve managed any other credit commitments in the same responsible way. On the other hand, making a late repayment or missing one altogether will damage your score.
- You should only ever borrow the amount of money that you need and can afford to repay.
- If you have bad credit history and find a lender willing to consider your application, you should bear in mind that a bad credit loan could come with a higher rate of interest, which will increase the overall cost of borrowing.
Who can be my loan guarantor?
If you’ve decided that a guarantor loan could be a suitable option for you, the next step is to think about who you’re going to ask to be your guarantor. Each guarantor loan lender will have their own eligibility criteria for who can act as a guarantor. Typically, a guarantor may need to:
- Be over the age of 18. For some lenders, the minimum age may be 21;
- Be a UK resident with a UK address. Some lenders may request a certain number of years’ worth of UK address history;
- Have a UK bank account and valid debit card;
- Have a regular source of income paid into their bank account; and
- Have good credit history.
Whether it’s a family member or close friend, trust is the most important factor when choosing your guarantor and this should work both ways. Your guarantor should be somebody you feel comfortable discussing money with, and vice versa, even if it’s not in a positive light.
Can I apply for a guarantor loan with Growing Power?
Growing Power is a credit broker, not a lender.
Growing Power does not currently work with any lenders of guarantor loans, although if you’re thinking about searching for a no-guarantor loan, we could help. The 30+ responsible lenders on our panel offer short-term personal loans from £100 to £10,000. Depending on the amount of money you apply to borrow, you could choose to repay your loan across a term from 3 to 60 months.
If you’re worried about your credit score, it’s worth noting that a number of the lenders on the Growing Power panel specialise in loans for people with bad credit.
Please be aware that a bad credit no-guarantor loan could come with a higher rate of interest, and you might not be approved to borrow the amount of money that you need.
Could I get a guarantor loan if I have no credit history?
No credit history is often referred to as having a ‘thin’ credit file. A thin credit file is when there is little to no credit history to show and usually occurs if you’ve never borrowed credit or paid bills before.
With no evidence of how you’ve managed credit in the past, lenders may view your application as riskier.
If you have a thin credit file, a guarantor loan could be something to think about, although again, before you search for any type of loan, you should be sure that you’re comfortably able to afford to make your monthly repayments on time.
If you’re unsure whether a guarantor loan is right for you, you might be interested to know that Growing Power work with a number of UK-based lenders who could be willing to consider applications for no-guarantor loans from people with no credit history.
Will I need a credit check for a guarantor loan?
Yes. Guidelines set by the Financial Conduct Authority (FCA), require all responsible lenders to carry out an affordability check on anybody applying for a loan. When you apply for a guarantor loan, both you and your chosen guarantor will need to undergo an affordability check. An affordability check will either be in the form of a hard search or through Open Banking.
A hard search will remain on your credit file for up to 12 months and multiple hard searches within a short period of time could have a negative impact on your credit score.
Open Banking is a secure procedure that allows an authorised third party, such as a lender, to look at your bank account and recent financial history. A third party can only access a read-only view of your account and only with your consent.
When searching for a trusted and responsible lender, you should make sure that they appear on the FCA register, which you can check here.
Can you explain a little more about how guarantor loans work?
- Work out exactly how much money you need and how long you’d like to borrow it for.
- Decide who you’d like to nominate as your guarantor, and make sure that you both understand what’s expected in terms of repayments and potential risks.
- When you make your application with a lender, they will carry out an affordability check on you and your guarantor. As mentioned, an affordability check will include either a hard search or Open Banking.
- If the lender is happy with the outcome of their checks, you’ll be sent a loan agreement. Both you and your guarantor should take the time to read through this very carefully and ensure that you’re both able to afford the repayments.
- If you and your guarantor are happy to go ahead with the loan, you can sign and return the agreement. The lender will let you know when you can expect your money to be sent.
How is a guarantor loan repaid?
A guarantor loan will typically be repaid in monthly instalments until the term comes to an end.
If your financial circumstances change and you find that you’re no longer able to afford your repayments, you’ll need to talk to your guarantor, who will be expected to step in and make the repayments on your behalf.
What happens if neither my guarantor nor I can afford to repay the loan?
In this instance, you should contact your lender as soon as possible.
Making a late repayment or missing one altogether will have a negative impact on your credit score, and if your guarantor is also unable to step in and make the repayment, their credit score will also be affected.
Your lender will be able to talk you through any options that may be available to you.
If you’re worried about money…
Money worries can feel all-consuming, but please know that you don’t need to suffer in silence. There is nothing shameful about struggling with money; in fact, many of us will experience financial hardship at some point in our lives. You have every right to seek the help you deserve and work towards getting back on your feet.
Charities and organisations such as StepChange, MoneyHelper, Citizens Advice, and National Debtline offer free, confidential advice and support on a range of money matters.