What is a guarantor loan, how do they work, and could I get one with bad credit?
In our guide to guarantor loans, CashLady answers some frequently asked questions.
CashLady is a credit broker, and we do not work with any lenders of guarantor loans; however, we explain that you could still be eligible to apply for a loan without a guarantor, even if you have bad credit.
What is a Guarantor Loan?
A guarantor loan involves someone else agreeing to the responsibility of making your repayments if you’re unable to.
A guarantor is there to step in and help in case of an unexpected change in your financial circumstances, such as the loss of a job.
They’re not there to take over your repayments without good reason.
You shouldn’t take out a guarantor loan unless you’re confident that you’ll be able to make the repayments yourself.
When you apply for a loan, you must ensure that the repayments are affordable for you, based on your current circumstances. You should not apply for a loan if you believe your financial situation could change during your repayment term.
What can I use a guarantor loan for?
Many borrowers commonly apply for a guarantor loan to help fund a financial emergency, such as a broken boiler or washing machine.
You should always spend responsibly and should never apply to borrow more money than you need or can afford to repay.
Could I apply for a guarantor loan if I have bad credit?
Yes, you could be eligible to apply for a guarantor loan, even if you have bad credit.
In fact, a guarantor loan could be a suitable option for someone with bad credit.
Having bad credit could make it difficult to find a lender willing to consider your application, but applying with a guarantor could increase your chances of approval.
Can I apply for a guarantor loan if I have no credit history?
If you have no credit history, otherwise known as having a ‘thin’ credit file, applying for a loan with a guarantor could help you gain access to credit when you need it the most.
A thin credit file is common in people who have never paid bills in their name or borrowed credit before. While not a bad thing, a thin credit file could have a negative effect on your borrowing options. With no evidence of how you’ve managed credit in the past, lenders might view your application as a risk.
Applying for a loan with a guarantor who has history of good credit management could increase your chances of being considered.
How do guarantor loans work?
Each lender will have their own process in place, but generally, you can expect the guarantor loan procedure to look something like this:
1. Apply for the loan with the consent of your chosen guarantor.
2. The lender will complete a creditworthiness assessment on you, which will include a hard search or Open Banking.
3. Your guarantor will also need to undergo some checks with the lender.
4. If you and your guarantor pass the lender’s checks and you’re both happy to proceed, the money will be sent to your bank account.
5. The loan will be repaid in monthly instalments over your chosen repayment term. If you’re unable to cover the cost of the loan due to unforeseen circumstances, your guarantor will be responsible for taking over the repayments for as long as you’re unable to make them. The repayments must be made in full and on time each month.
Guarantor loans: who can I ask to be my guarantor?
Most borrowers ask a family member or close friend to act as their guarantor. It’s crucial to have a trusting relationship with your chosen guarantor, and you’ll both need to feel comfortable talking about money.
While eligibility criteria differ between lenders, your chosen guarantor must typically be:
- Over the age of 21. Some lenders may also have an upper age limit.
- Be a UK resident.
- Have a UK bank account and a valid debit card.
- Have a regular source of income paid into their bank account.
- Have good credit history and be in good financial standing.
Who can’t be a guarantor for a loan?
Anyone who doesn’t match your chosen lender’s eligibility criteria will not be able to act as your guarantor.
Usually, you cannot ask someone to be your guarantor if you’re financially linked with them, for example, you share a bank account. Depending on your circumstances, this could rule out the possibility of your partner being a guarantor.
You should think very, very carefully before asking someone to be your guarantor. This is a serious commitment, and both parties need to be completely comfortable with the arrangement.
If someone turns down your request, it’s important to respect their decision. They do not need to provide you with a reason, and you should never pressure someone into agreeing.
Things to think about before you apply for a guarantor loan
- A guarantor loan is a huge financial risk for both you and your guarantor. You should consider how this could impact your relationship. It’s vital to maintain open communication throughout the entire process. If there’s a problem along the way, be honest and talk to your guarantor as soon as you can.
- There’s also the potential credit score impact to think about. If, for some reason, both you and your guarantor are unable to pay back the money owed and repayments are made late or missed altogether, both of your credit scores will be negatively affected.
- A guarantor loan could come with a higher rate of interest, particularly if you have a history of bad credit or have little to no credit history. The higher the interest rate, the more the loan will cost you.
Alternatives to guarantor loans: could I get a guarantor loan with CashLady?
CashLady is a credit broker. We do not work with any lenders of guarantor loans; however, we could help you search for a guarantor loan alternative.
A guarantor loan doesn’t necessarily have to be your only option; CashLady is proud to work with a number of lenders who specialise in loans for people with bad credit or a thin credit file.
Whatever your credit score, you can search for a no-guarantor loan with CashLady if you:
- Are over the age of 18;
- Are a UK resident;
- Have a UK bank account and a valid debit card; and
- Have a regular source of income paid into your bank account.
Please note, a bad credit loan or a loan for people with no credit history could come with a higher interest rate.
If you need advice on anything money or debt related…
Please don’t suffer in silence. Organisations such as StepChange, MoneyHelper, Citizens Advice, and National Debtline offer free, impartial financial support.