What is a guarantor on a loan?

How does a guarantor loan work? 

If you’re struggling to get a loan, or a bad credit loan, you may consider getting a guarantor to boost your chances of approval.

With guarantor loans, the lender takes the guarantor’s credit history into account as well as the borrower’s. If the guarantor has a good credit history, the lender may be more willing to approve the application.

The guarantor acts as a safety net and reduces the risk of non-payment. This type of loan is a three-way agreement between the borrower, the lender, and the guarantor.

However, even with this added safety net, there’s no guarantee of acceptance, as this is down to the lender’s eligibility criteria.

Who can apply for a guarantor loan? 

Anyone can apply for a guarantor loan, as long as they:

• are at least 18 years old
• have a UK bank account
• are in full-time employment

Because of the added security provided to the lender by the guarantor, this type of loan could be an option for people who may not have the best credit history and will otherwise struggle to get a mainstream loan. 

Who can be a guarantor for a loan? 

When it comes to who can be a guarantor for a loan, lenders all have their own criteria. Some require that you:

• are at least 18 or 21 years old or over
• have a good credit history – proving that you are a reliable borrower
• hold a UK bank account

Most providers of guarantor loans also insist that the guarantor is a homeowner; however, some will allow a tenant to be a guarantor. 

What does a guarantor need to provide? 

A guarantor will need to provide the lender with documentation to support the credit application, such as:

• proof of identification – this shows that you are who you say you are
• proof of address – so they know they can contact you
• proof of income and outgoings – such as bank statements or payslips

Do guarantors get credit checked? 

Yes, the lender will conduct a credit check on both the borrower and the guarantor. They want to make sure the guarantor is a responsible borrower based on their recent and past financial behaviour.

If a guarantor has bad credit, they are likely to be declined, as it would be deemed as too high a risk from the lender’s point of view.

It may be a good idea for both parties to check their credit reports with the three main credit reference agencies in the UK (Equifax, Experian and TransUnion). You can check your Equifax report for free through our member-only platform, CredAbility. This will give you an idea of what lenders can see and which areas you might want to improve on before applying.

The lender will also conduct an affordability check to assess the income and expenditure of the borrower and guarantor. This is to get an idea of how much they can afford to pay each month towards a loan – on top of their existing expenses.

What are the pros and cons of guarantor loans?  

It’s crucial to consider the advantages and disadvantages of guarantor loans before signing an agreement.

Pros

Cons

The borrower may be able to access a loan they wouldn’t have been eligible for without a guarantor. Once in place, if the borrower sticks to the agreed loan terms, the guarantor’s credit score won’t be affected. Providing the terms are kept to, the loan can enable the borrower to build up their credit score, improving their chances of future credit acceptance.

Both parties are responsible for the loan payments. If payments are missed, the guarantor can be chased for money owed, as well as it negatively impacting their credit history. High interest rates are likely, as guarantor loans are typically designed for those with bad or thin credit files. In the event of a default on the loan, as a last resort, the lender could take legal action against both parties to recover their funds.

How long does being a guarantor last? 

Once you sign the credit agreement and the money is paid out, the guarantor is legally bound by the agreement until the loan is paid off.

Is it possible to stop being a guarantor on a loan?

When you agree to become a guarantor on a loan, you sign a legally binding contract. Once you’ve done this and the loan has been paid out, you wouldn’t ordinarily be able to stop being a guarantor on that loan.

There are, however, some exceptional circumstances where you can stop being a guarantor, such as if you signed under duress or were duped into agreeing. If you believe this applies to you, contact Citizens Advice for help.

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