What Are Guarantor Loans?

A basic guide to understanding what guarantor loans are and how they work.
In recent years, there has been a rise in a new kind of lending in the loan market. A method that was used before in the past, before computer credit scores were created, and has now come back into ‘fashion’. It is an alternative way to borrow money without staggeringly high representative APRs. A loan that is an ideal way to borrow money, especially if you have bad credit. But what is a guarantor loan? This basic guide will tell you all you need to know about guarantor loans, including how they work and comparing what loan companies are out there.
What are guarantor loans?
Coming back into popularity in the late 2000s, guarantor loans a different kind of lending method. Most loan companies base their loan approvals off your credit score – bad credit means bad rates (or no loan at all), but a guarantor loan is different. Lenders let you borrow money through trust based lending. No credit score required. Money experts agree that it is an ideal way to get a loan if your credit score is poor or simply non-existent. All you need to qualify for the unsecure loan is to provide a guarantor, who co-signs your application with you. Loan amounts are usually between £1000 – £15,000 and repayment terms can be between 1 – 7 years (dependent on the loan provider).
Bad Credit
Credit has become the currency of the 21st century when it comes to borrowing money. Credit cards, mortgages and bank loans will all look at your credit score before approving an application or offering out any money. The better your credit, the better rates you receive. However, bad credit is something that is sometimes out of your control. A missed bill or never having borrowed money in the past can directly affect your credit score. Guarantor loans have become ideal loans for people with bad credit, as they do not rely on your credit score and have lower rates than most other unsecured and secured loans. Paying off a guarantor loan, or any other loan, can improve your credit score. So, if you decide to borrow money, you could improve your credit for the future, to get better rates on loans.
Unsecured & Secured Loans
A guarantor loan is an unsecure loan. This means that when you apply for the loan, and are accepted, you do not need to put up any property or possessions as collateral against the loan. Secure loans usually require you to put your house or car up against the loan, and are usually for larger amounts. Therefore, guarantor loans are usually a safer way of borrowing smaller amounts of money.

Personal Loans
Being a personal loan, a guarantor loan can be used for almost anything – as long as it is legal. This means that you can use your loan for a car, wedding or even a holiday. Some borrowers use guarantor loans to consolidate debt into one payment, so they can manage any other outstanding debt they may have. It’s your money, so use it how you wish. However, you should never take out a loan you cannot afford to repay. It is always important to seek independent financial advice before you take out a loan. Taking out a loan you cannot afford to repay can cause serious money problems.

Payday Loans
Not to be confused with guarantor loans, payday loans are an alternative method to borrowing money, if you have bad credit. How they differ though is important to understand. Payday loans usually have higher representative APRs, are for lower amounts of money (£100 – £1000) and have shorter terms to repay the loan – making them costlier than a guarantor loan if not repaid in time. Payday loans are a quick method of receiving money, but interest rates can range anywhere from 1,000% to even higher.
A Guarantor
Who can be a guarantor? Who can support your application for a loan? The answer is easy. Your guarantor can be a friend or family member, landlord, boss, etc. See your guarantor doesn’t have to do anything for your application. They need to agree when they sign that should you fail to meet a monthly payment on the loan, they will cover the cost for you. As long as you repay the loan, your guarantor will have to do nothing.
Most companies look for you guarantor to be between the ages of 18-78, have a regular income and be a UK homeowner. A guarantor’s credit score will not be affected by your application/approval, they just need to agree to help you out by repaying the loan, should you be unable to. Borrowing money can harm personal relationships. If you fail to pay your loan and it falls to your guarantor, it may damage your relationship with them, so it is important that you and your guarantor respect, and trust each other. A guarantor loan is a mutual agreement between your lender, you and your guarantor – ensuring that you pay back the loan. Your guarantor is not responsible for paying back your loan. They only have to cover any payments that you may miss.



Loan Comparisons
Below is a graph showing the best competitive rates on the guarantor loan market (Amigo Loans, TFS Loans, Buddy Loans, First Choice Finance and Lend Fair). Most interest rates are roughly between 48-50%. However, for more accurate rates on specific amounts, most loan companies have a loan calculator on their site.



Guarantor loans are an affordable way to borrow money, if you have bad credit. They typically have lower rates than most other forms of lending, and usually have no hidden charges or fees. The only thing you need to qualify for a guarantor loan, is a guarantor to co-sign your application. They must agree to cover any repayments you miss on the loan, should you be unable to make them.