What are the requirements to be a guarantor?
Find out what you and your guarantor need to do before you get approved for a loan.
If you have a low credit score or a high debt-to-income ratio, you may need a guarantor to help you qualify for a loan. This person should have a good credit score and will need to agree to take over your loan payments if you can no longer make them.
Find out more about how a guarantor can help you qualify for a loan and learn what requirements they need to meet to get approved.
How does getting a personal loan with a guarantor work?
Getting a guarantor loan is a fairly simple process. It involves finding someone with good credit to sign onto your loan with you to strengthen your application. This person will have to agree to pay back your loan if you’re unable to make repayments.
Having a guarantor can help you get larger amounts, lower interest rates and better terms for your loan. But there are relatively few benefits for your guarantor, other than helping you to access funds. This can make it difficult to find someone to agree to sign on to your loan with you.
Compare personal loans with a guarantor
How does a guarantor differ from a cosigner?
The difference boils down to liability. When you cosign a loan, it means you’re legally obliged to make payments if the primary borrower defaults on the loan. As a guarantor, there’s a little bit more flexibility.
For cosigners, a lender can request repayment from both you and the borrower immediately if you miss a payment. Guarantors only become liable when the lender has exhausted all means of collection against the person who borrowed the money in the first place.
Cosigning a loan can be a tricky business and some lenders have strict regulations in place to determine who can guarantee the loan of another borrower. Guarantors will usually need to meet the following requirements.
- High credit score. One of the most important requirements for your guarantor is that they have a good to excellent credit rating (typically 650 and above).
- Decent income. They will likely need to show proof of income or enough savings to pay back the loan if you fail to make your repayments.
- Stable job and housing. They could also be required to show they’re not a flight risk by proving how long they’ve been employed and have lived at their current address.
- Canadian resident. For some loans, your guarantor will need to have lived in Canada for a certain period of time to cosign.
- Age of majority. They’ll also need to prove they’re over 18 years of age (in most provinces), usually by showing a piece of government-issued ID.
Benefits and drawbacks of applying with a guarantor
- Easy approval. You’re more likely to get approved for a loan if you have a guarantor with a good credit rating.
- Lower interest. Finding the right guarantor could make you eligible for lower interest rates.
- Larger amount. Backing your payments up with an extra income could make you eligible to receive more money.
- Better terms. Your lender may give you more-favorable terms if you use a guarantor to de-risk your loan.
- Risk for guarantor. Your guarantor will take on a significant amount of risk when they cosign for your loan, including agreeing to take on your payments if you default.
- Could strain relationship. Your relationship with your guarantor could suffer if you don’t make your repayments on time.
- Joint application. You’ll need to coordinate with your guarantor to get your application filled out properly.
- No guarantee of approval. You could still be rejected in which case you’ll need to consider other options, such as a bad credit loan.
How to apply for a guarantor loan
If you’ve found a guarantor who’s willing to sign on to your loan with you, the next step is to find the right lender. Most lenders will need you to follow a couple of simple steps to apply.
- Check your credit score. You should start by checking your credit score to see where you stand. If you’re above 650, you may not need a guarantor to cosign for your loan.
- Compare lenders. Once you know your credit score, you should compare three or four lenders (at least) to find the best interest rates and terms for your loan.
- Fill out your application. When you’re ready to apply, both you and your guarantor will need to provide your personal and banking info through an online or in-person application.
- Submit additional documents. Both parties may also be asked to supply certain documents like a government-issued piece of ID, tax records, pay stubs or bank statements as proof of income or identity.
Other options for those with bad credit
- Government subsidies. If you can’t qualify for a loan, you could try applying for a low-income funding program sponsored by your province or the federal government to help you cover the cost of your basic needs.
- Credit builder loans. You may be able to apply for a credit builder loan through your local credit union. These loans can help you build your credit score by reporting your on-time payments.
- Credit counselling services. There are credit counselling services in every province that can help you make a budget and manage or consolidate your debts.
- Borrowing from friends or family. You may be able to ask a loved one to give you a loan if they don’t want to be your guarantor.