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Compare guarantor loans for March 2023
If your credit record isn't perfect, you could get a better interest rate by applying with a friend or relative with good credit.
What does guaranteeing a loan mean for the borrower and the guarantor? This guide will take you through the ins and outs of guarantor personal loans, the benefits available to borrowers and how to avoid some common pitfalls.
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What does it mean to guarantee a loan?
Lenders use a number of factors (such as your credit score, the amount of time you have worked for your current employer etc.) in order to help them determine which applicants would present the least risk. If you don’t meet one of these requirements, you might not be able to get approved for a loan despite it being perfectly affordable for you. In such a situation, you could consider enlisting the help of a family member or a close friend to act as a guarantor.
When you ask someone to guarantee your loan, you are asking them to take on your debt if you default on your loan. If you agree to go guarantor on someone’s loan, you become legally responsible for the debt if they become unable to manage their repayments. Crucially, acting as guarantor does not mean “putting in a good word” for somebody, or providing a reference – you are volunteering to repay the loan in full (plus any interest and fees) if the borrower doesn’t.
If you are a guarantor and you apply for further credit of your own, you may need to declare the guarantee on your application.
The guarantor’s credit rating should not be affected unless the borrower defaults and the guarantor then fails to meet a repayment. However if the guarantor applies for a mortgage for example, the size of mortgage they could get might be affected by the guarantor loan, since they could find themselves responsible for that debt at any time.
What should I look for in a guarantor loan?
When it comes to comparing guarantor loans, there’s some key features to look for. Look at each loan’s features and costs before deciding which one suits your needs.
- Total payable. How much of the loan amount, plus fees and interest you will be expect to pay.
- Interest rate. Most guarantor loans charge a fixed rate of interest, meaning your monthly repayments will stay the same throughout the loan. Remember that the advertised rate is not necessarily the rate that the lender will offer you.
- Fees. Are there any application/set-up/product, late payment, early repayment or overpayment fees?
- Loan terms and amounts. Aim for a shorter term that gives you monthly repayments you can afford. The longer the loan period, the more money you are likely to pay.
- Eligibility criteria. Does the borrower and guarantor both meet their individual criteria?
- Early repayment. There might not be any fees for repaying your loan early, but many lenders will charge an additional two months’ interest on any sums repaid ahead of time.
Homeowner or non-homeowner guarantor loans
Some lenders divide their loans into two categories – either for homeowner guarantors or non-homeowner guarantors. The term “non-homeowner” refers to the residential status of the guarantor, not the applicant (borrower).
Non-homeowner or tenant guarantor loans usually have a higher interest rate than homeowner guarantor loans, because of the perceived increased risk to the lender and the complication of involving a guarantor.
Application process
These are the typical steps that an application for a guarantor loan will go through:
Who can be my guarantor?
Criteria will vary from lender to lender, but as a minimum, you should expect that guarantor must:
- Age 21-75.
- Not be your spouse or partner.
- Have a strong credit record.
- Have an income (employed, self-employed or a pension).
- UK resident and hold a UK bank account.
- Have completely separate finances to your own.
- Give their full consent to act as guarantor and understand the commitment they are undertaking.
Not every personal loan is a “guarantor” personal loan. Using a guarantor is a feature offered by some specialist lenders, including those listed above.
Thinking of being a guarantor?
- I am satisfied that the borrower can manage the loan repayments. This is up to you to ensure, and may involve you seeking independent financial advice.
- I have checked the terms of the loan agreement. This includes checking whether you can expect to be notified if the borrower defaults on the loan, and the extent of your liability.
- I understand the lender doesn’t have to proceed with enforcement against the borrower before taking legal action against me as a guarantor. You have no right to insist on this as a guarantor.
- I understand that I could end up paying more than the original amount borrowed. Unlike some forms of borrowing, interest on guarantor personal loans is not capped by the Financial Conduct Authority (FCA).
What documents do you need to open a personal loan?
What’s the difference between a guarantor and a co-borrower?
If you’re a co-borrower, you are listed on the loan as a borrower and are jointly liable for the debt. If you are a guarantor, you only become responsible for the debt when the borrower defaults on the loan.
What is APR?
When you’re comparing guarantor loans, it won’t be long before you’ll come across the Annual Percentage Rate (APR). This figure is designed to provide an annual summary of the cost of a loan, taking into account both interest and any unavoidable fees (for example an arrangement fee) over the duration of a loan.
All lenders must calculate the APR of their products in the same way, and must tell you the APR before you sign an agreement. So for consumers, it can be a handy tool for comparison.
There’s a big catch, however. Almost all lenders tailor their interest rates to the individual applicant – so where they think there’s greater chance of not getting their money back, they’ll offer a higher interest rate. The representative APR is the APR that the lender realistically expects at least 51% of its borrowers to receive.
Many guarantor lenders have chosen to split out the loans they offer into loans where the guarantor is a homeowner, and loans where the guarantor isn’t a homeowner. As such you’ll sometimes see two different representative APRs for the same loan company, for example UK Credit and TrustTwo.
Frequently asked questions
We show offers we can track - that's not every product on the market...yet. Unless we've said otherwise, products are in no particular order. The terms "best", "top", "cheap" (and variations of these) aren't ratings, though we always explain what's great about a product when we highlight it. This is subject to our terms of use. When you make major financial decisions, consider getting independent financial advice. Always consider your own circumstances when you compare products so you get what's right for you.
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