Guarantor Loans Explained
Can I Get A Guarantor Loan?
A guarantor loan is essentially an unsecured loan for which someone else is responsible if you cannot keep up your repayments. They are typically associated with ‘bad credit’, because people who have adverse or no credit history are more likely to be accepted as the lender’s risk is reduced.
Who Can Apply?
If you have poor credit or no credit history and are struggling to be accepted for a personal loan, it may be worth looking at a guarantor loan. You can apply if you’re over 18 years old, in full-time employment and have a UK bank account. You’ll need to demonstrate to the lender that you can afford the repayments.
If you keep up the repayments, your credit score should improve.
How does a guarantor loan work?
A guarantor loan works in much the same way as a personal loan. You can usually borrow between £1000 and £10,000 and will repay it in monthly instalments over a term between one and five years.
You will pay interest based on an APR (annual percentage rate). APRs for guarantor loans are typically much higher than for standard unsecured loans. This means you can expect to pay back much more than you originally borrow.
The only difference with a guarantor loan is that you have someone who agrees to be liable for your repayments if you cannot keep up with them.
Who Can Be My Guarantor?
Your guarantor can be a friend, family member or colleague, as long as they meet the following criteria:
- They must be 18 years or older (some lenders will insist on your guarantor being at least 21)
- They must be in full-time employment
- They must hold a UK bank account
- They cannot be your spouse
- They must not share a bank account or be financially linked with you
Individual lenders may impose additional criteria, for example that your guarantor has a good credit rating or own their own home.The money will often be paid into your guarantor’s bank account for security reasons.Page Break
What Should My Guarantor Be Aware Of?
It’s paramount that your guarantor understands their responsibility. They could be face legal action if repayments are not made and their credit record will be adversely affected. If the loan was dependent on your guarantor being a homeowner, their home could be repossessed if the loan payments are missed.
Can I Pay Off My Guarantor Loan Early?
Many lenders will allow you to pay off your loan early. Doing so will mean you pay less interest overall.