What is a guarantor loan?

A guarantor loan is a type of unsecured loan.

Like standard loans you will be responsible for making the payments, but a second person acts as a guarantor to ensure they are still made if you fall behind.

How do they work?

In many ways a guarantor loan works just like a normal personal loan:

  • You can usually choose to repay your loan over one to five years

  • You could borrow between 1,000 and 10,000

  • You are charged interest on your borrowing

  • Repayments are split evenly across the loan, so you pay the same amount each month

The difference is if you miss your monthly payments the lender can ask your guarantor to repay your loan for you.

Why do you need a guarantor?

Having a guarantor reduces the risk to lenders because they have a back up plan if you default or fall behind on your borrowing.

For this reason, guarantor loans tend to be aimed at borrowers with bad credit, or who are borrowing money for the first time.

Who can be a guarantor?

Almost anyone but some lenders set stricter requirements than others, including:

  • Being over 18, or over 21

  • Having a strong credit record

  • Not being financially linked to the borrower e.g. a spouse

  • Being a homeowner

How much do they cost?

Guarantor loans are often more expensive than normal unsecured loans because they are designed for borrowers with a poor credit record.

At the moment guarantor loan rates are between 11.2% and 50% APR.

The rates on guarantor loans are often higher than other bad credit loans as well, but your chances of being accepted may be better because you have a guarantor.

This makes it even more important to shop around and look for the lowest interest rate possible before you apply.

A guarantor loan costing example

Here is how much a 5,000 guarantor loan taken out over three years could cost:

APRMonthly paymentsInterestTotal to pay back
15%171.031,157.086,157.08
30%202.852,302.607,302.60
50%244.183,790.488,790.48

You can use our loan repayment calculator to check how much different loans could cost, by changing how much you want to borrow, the APR and the loan term.

What are the risks?

If you are the main borrower the risks of taking out a guarantor loan are the same as any other personal loan, which include:

  • The risk of getting into debt that becomes difficult to manage

  • Damage to your credit record if you miss payments or default

  • Legal action to reclaim the money

The loan guarantor is also at risk because they are equally liable to repay the loan if the main borrower defaults.

Getting the right loan

To get the right guarantor loan you need to:

  1. Work out how much you need to borrow

  2. Decide how long you need to pay back the loan

  3. Exclude any loans where you or your guarantor do not fit the criteria

Once you have done this, start looking for the lowest interest rate possible.

Applying for your loan

Once you have chosen a lender you will need to apply for your loan and give them your and your guarantor's details.

Most loans are paid out within 48 hours of submitting your application, but this may be delayed if they are unable to contact your guarantor, you live in Scotland or Ireland or you apply at the weekend.

Some lenders will then transfer the loan into your guarantor's bank account. This is usually done for security reasons and to make sure they agree to act as a guarantor on your behalf.

What are the alternatives?

Some other borrowing options you could consider instead of a guarantor loan include:

  • Credit unions: There are limits on how much credit unions can charge for loans, so they can be a good option if you have bad credit and there is one where you live. Find out more on the Money Advice Service website.

  • Bad credit loans: Some lenders are more willing to consider applications if you have bad credit without the need for a guarantor, but the rates may be higher. Here is how bad credit loans work.