You might consider getting a guarantor loan if you have a low credit score or no credit history. Or, you may have been asked to be a guarantor for someone else, like a family member, if they need help getting approved for a loan.
What is a guarantor loan?
A guarantor is someone who ‘guarantees’ a loan for someone else – they agree to pay back the loan if the other person can’t. This reduces the risk for the lender. These types of loans are called ‘guarantor loans’.
In most cases, the lender will just need some information about the guarantor at the start of the loan agreement to confirm their identity and make sure they have enough money to pay back the loan in theory. If the person borrowing the money makes their debt repayments on time, the guarantor won’t have to do anything else.
However, if the borrower fails to make payments, the guarantor is legally required to pay back the loan for them.
Who can be a guarantor?
Many people can be guarantors, but it should be someone you trust – for most people, this is a family member or close friend.
Some lenders have their own rules about who can be a guarantor, but in general, a guarantor must:
- have a good credit history
- be at least 21 years old, or 18 in some cases
- live in the UK (in case the lender needs to take legal action).
To be a guarantor, you’ll also need separate back account to the borrower. You can still act as a guarantor for a partner or family member you share a bank account with, as long as you also have a separate one.
The lender will need proof that the guarantor will be able to pay off the loan if the borrower can’t, so they might have additional requirements. For example, the lender might ask for:
- proof that they’re working
- proof of income
- the guarantor to be a homeowner.
How being a guarantor affects your credit score
As long as the borrower pays back the debt on time, being a guarantor won’t affect your credit rating. But, if you have to make payments on their behalf, it’ll be added to your credit history. This could reduce your credit score and make it more difficult to get credit or a good interest rate in the future.
Credit checks
Lenders will do a credit check on the guarantor to decide whether they think they’ll be able to repay the loan if the main borrower doesn’t. If you’re a guarantor, this means the lender will do a ‘soft’ credit check, which isn’t visible to other companies and won’t affect your credit score.
They’ll need the guarantor’s bank details and proof of ID to do this.
Using a guarantor loan
Whether you’re the borrower or the guarantor, make sure you talk about whether you can afford the loan and what will happen if you can’t make the repayments.
Pros
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A guarantor loan can be a good solution if you have a bad credit score or no credit history. You might be a student and just starting out, or maybe you’re new to the country.
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Guarantor loans can give you the opportunity to improve your credit score if you keep up with your repayments. This proves to lenders that you’re a reliable borrower and you may be able to get credit on your own in the future, and with better interest rates.
Cons
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Guarantor loans can be more expensive than some other types of credit since then often have higher interest rates. Make sure you’ve looked at all your credit options, in case there’s a cheaper way for you to borrow money.
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Guarantor loans are less risky for the borrower than the guarantor, but can negatively affect both people’s credit score if it’s not paid back on time.
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If the guarantor has to make payments on the borrower’s behalf, it could strain their relationship. Think carefully about asking someone to guarantee a loan for you, or about saying yes to being a guarantor.
Find out how to prepare for talking about money with a partner, friend or family member in our article How to have a conversation about money.
If you miss more than one payment, whether you’re the guarantor or the borrower, use our debt advice locator to find free and confidential debt advice.
Guarantors and financial abuse
If your partner or a family member is pressuring you to act as a guarantor for a loan, this is financial abuse. You have the right to make independent decisions about your money, including being a guarantor. If you're in this situation, there’s help and support out there.
Find out more in our guide Financial abuse: spotting the signs and leaving safely.