Guarantor loans are often marketed as a solution for people with bad credit or no credit history. They can provide access to borrowing when other lenders refuse, but they also place a significant legal and financial burden on the person who agrees to guarantee the loan. In the UK, these products have grown in popularity due to stricter lending rules and rising living costs, but that has also led to more cases of financial strain for both borrowers and guarantors. Understanding exactly how they work, the potential risks, and the safer alternatives available is essential before you commit.

What Is a Guarantor Loan?

A guarantor loan is a type of unsecured personal loan where someone else, typically a friend or family member, agrees to repay the debt if you do not. The loan approval is based largely on the guarantor’s creditworthiness rather than your own credit record.

How It Works:

• You apply for a loan, usually between £1,000 and £10,000
• You nominate a guarantor, often a homeowner or someone with strong credit
• If approved, you make monthly repayments, but if you miss them, the guarantor becomes legally responsible for paying

Who Can Be a Guarantor?

Most lenders require guarantors to meet specific criteria, such as:

• Being aged between 21 and 75
• Having a strong credit history
• Being a UK resident
• Having a stable income from employment, self-employment, or pension
• Not being financially linked to you, such as a spouse or civil partner

For example, a parent who owns their home outright and has a long history of on-time mortgage payments is likely to be accepted. However, if the guarantor has existing debts or a limited income, they could struggle to meet repayments if you default.

What Are the Risks?

Guarantor loans are high-risk for both borrowers and guarantors.

For Borrowers:

• High interest rates, often exceeding 30% APR
• Missed payments can damage your credit score for years
• Risk of harming your relationship with the guarantor if you cannot repay

For Guarantors:

• Full legal responsibility for repaying the loan if the borrower does not
• Possible damage to your credit file if payments are missed
• Risk of debt collection or legal action if you also cannot repay

In some cases, guarantors have faced county court judgments (CCJs) and even had assets seized after stepping in to cover unpaid debts.

Should You Get a Guarantor Loan?

You might consider a guarantor loan if:

• You have been turned down by mainstream lenders
• You have someone willing and able to be your guarantor
• You are borrowing for an essential purpose, not a non-essential purchase

Even then, it is vital to compare alternatives first.

Alternatives to Guarantor Loans

• Credit Builder Cards: Improve your credit over time with smaller, manageable limits
• Budgeting Loans: If you receive certain benefits, you may qualify for interest-free loans from the government
• Credit Unions: Member-owned lenders that often offer fairer rates
• Debt Help: If borrowing is to cover other debts, consider options like a DMP or IVA

How to Protect Yourself and Your Guarantor

• Only borrow what you genuinely need and can realistically repay
• Ensure the guarantor fully understands the risks before signing
• Get all terms in writing, including what happens if you miss payments
• Set up a direct debit to avoid missing payments accidentally

Frequently Asked Questions

Final Thoughts

Guarantor loans can be a lifeline for those with limited borrowing options, but they are not a decision to take lightly. The financial and personal consequences can be long-lasting for both borrower and guarantor. Always review safer alternatives first and ensure both parties fully understand the commitment.