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Why be a loan guarantor?
Help a friend or family member
- Get a loan – it's more difficult with a poor credit history.
- Get a more affordable rate – other bad credit loans can be expensive.
- Repair credit history – paying back a loan will help repair their credit file.
What's a loan guarantor?
- Guarantee - someone who “guarantees” a loan or credit agreement
- Promise repayment - they promise to repay the loan if the borrower can't or won't
- Required by guarantor loan lenders - so they can lend to those with a poor credit history
More Questions? See below.
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Who can be a guarantor for a loan?
You need to be between 18 and 75 and a UK resident
- You can be a non-homeowner or tenant (but loans are typically cheaper if the guarantor is a homeowner).
- Your credit file should be clean, or only marginally imperfect (clean credit file loans are typically cheaper).
- You should have a regular income (which could be a pension).
- You need a UK bank account with a debit card.
- The loan will need to be affordable to you.
During the application process, you need to show that you can afford the repayments if the borrower defaults
- A regular income
- Expenses that are less than income
You need to be comfortable that if the borrower defaults you can afford their repayments.
What do you need to be a guarantor?
Affordability via a regular income
- Good credit history
- Aged between 18 and 75 years
- a UK resident with a UK bank account and debit card
From a real-world point of view, it is also useful to have a good relationship and trust with the borrower.
Can I stop being a guarantor for a loan?
There are circumstances where you can stop 👍
- Before the loan has been paid out
- If you and your borrower decide within the first 14 days of signing the loan/guarantor agreement
For more details read our FAQ page Can I stop being a guarantor on a loan?
I've been asked to be a Guarantor - what does this mean?
Someone you know has applied for a loan and they need to have a backer to support their application.
- If the borrower is unable to make any payments at any time, you will do this for them.
Before you e-sign the agreement you should make sure that
- You have read all the documentation you have been sent you which explains the terms and conditions of the loan that your relative, friend, partner or colleague is taking out
- You need to look at exactly what obligations they have as a borrower because you will be guaranteeing all those obligations
- Make sure you have read the guarantor agreement fully and understand what these documents mean and what you are guaranteeing (if necessary, take outside advice).
You need to know
- the loan amount
- the loan term
- how much are the monthly repayments are
When you are happy with all the information that you have received and wish to proceed, you are ready to sign or e-sign the loan agreement with the lender.
Who makes the monthly repayments?
Under normal circumstances, the borrower is expected to make all the loan repayments.
However, if they are unable or stop, see
What is a guarantor liable for?
They're liable for the full balance of the outstanding loan from the time the borrower stops paying plus any interest and fees 💷
- The same liability as if they had taken the loan themselves.
- They should, therefore, be able to meet the full loan repayments on top of all other existing financial commitments.
If they do not, they are subject to the same implications as if they had defaulted on an unsecured loan that they had taken out themselves.
Does being a guarantor affect your ability to get a mortgage?
It's possible 🤨
- Mortgage brokers and lenders could consider potential loan payment that you could be liable for as the loan backer.
- The mortgage lender may need to be satisfied that you can afford the mortgage as well as these loan repayments.
- There's a possibility that this could reduce your affordability for a new mortgage and the amount you could borrow.
If you are considering a mortgage, we suggest you take professional independent financial advice prior to signing the guarantor agreement.
Apart from this, so long as you have a clean credit file, taking on this responsibility should not affect your mortgage eligibility.
Will being a guarantor affect me getting a loan?
As above covered above, there may be some lenders that could consider your potential loan payments as a guarantor when assessing loan affordability.
So, it is possible that this could reduce the credit available to you, so you should therefore consider your own needs for credit first.
What if the borrower stops making the repayments?
With most lenders, once the loan account is up and running, if anything happens (such as the repayment not being made on time) they will contact the guarantor to keep them informed.
The lender will also
- Work with the borrower to try and get things back on track again
- If that is not possible, for example, if they are unable to get in contact with the borrower
- They may ask you the guarantor to step in and make the monthly repayments.
This is typically in the best interest of the account for both the borrower and the guarantor to stop arrears building and more serious action being taken further down the line.
What happens if a guarantor refuses to make the loan repayments?
If you refuse to pay, the consequences can be the same as if you defaulted on a loan you’ve taken out yourself 😦
- Damaged Credit File - missed payments will show up on your credit file, which could impede your ability to obtain future credit, although the more payments that are missed the greater the impact.
- Fees & Penalties - some lenders may charge fees as a penalty for missed payments, and this will obviously increase the debt that needs to be paid back and the overall burden on the borrower and you. Fees and charges vary from lender to lender. Make sure you find out the exact rates before the loan is taken out, so you are aware of potential additional expenditure.
- County Court Judgement (CCJ) - Depending on your lender, after a certain number of missed payments they may apply for a CCJ for both you and the borrower. This is where you attend Court and if the Judge agrees that you owe the money, they will order it to be paid.
- If the money is paid within a month of the order, the CCJ does not appear on your credit file.
- But if the amount is not paid, the CCJ will show for the next six years severely affecting your opportunity to get credit (even a mobile phone contract).
- If affordability is the issue, then the Judge may propose a payment plan, though the CCJ will still show up on your file.
- Charging Order - If the CCJ is not complied with, it’s possible that
- Your lender could request a Charging Order against a property owned by either the borrower or the guarantor.
- If in the future you wish to sell or re-mortgage the property on which the charging order has been placed, the amount owed to your lender will be deducted out of the proceeds and repaid to them.
- Bankruptcy - If any payments ordered by the CCJ are not met, it is possible the lender may apply for bankruptcy. This is not common for anything other than larger loans. So, whilst the possibility of you being made bankrupt is highly unlikely, you should understand that this is the very worst case.
As you can see, there can be major implications to being a guarantor, so if you are not fully confident of your ability to make the loan repayments should the borrower default, then you are not suitable.
Credit File Questions
Do guarantors get credit checked?
Your credit file is checked when the signed completed application is sent to the lender.
- When the borrower gets loan quotes using the Loan Apply Form, you (the guarantor) are not credit checked at this stage.
- A key part of the loan approval process is checking the loan backer’s credit history is clean.
- Your credit history dates back six years and the lenders are looking for missed payments, defaults or CCJ’s.
- The credit search also looks for local electoral registration, and other relevant financial associations.
When the lender does their credit check this shows up on your file:
This generally is not a problem unless you do make multiple applications in quick succession, lenders do not like seeing this as it implies that you have had multiple rejections.
Does the loan appear on a guarantor’s credit file?
Loans do not appear on the guarantor’s credit file 👍
Under normal circumstances, only the borrower will see the loan on their credit file, and this is what is recorded by the credit reference agencies.
- This is unless the account goes into serious arrears, see What happens if a guarantor refuses to make the loan repayments?
Can being a guarantor affect your credit rating?
When first applying to be a guarantor, this typically does not affect your credit file as lenders do a ‘soft search’ to check your eligibility
- If loan repayments are missed, this will affect your credit file and potentially your future ability to get credit.
- Most lenders are reasonable and will give you the opportunity to make a payment if the borrower defaults, though you do need to be aware of this.
During the loan application process, you will be credit searched so
It's suggested the borrower does not make multiple loan applications with you as guarantor, this does not look good on your credit file.
Can you be a guarantor with bad credit?
Typically, lenders will only allow loan backers with a good to marginally imperfect credit score 😐
- If your credit score is not good, it is unlikely that the application will be successful.
- Some of our lenders do not need your credit file to be perfect, but the best value loans are only available to applicants whose guarantor has a fully clean credit file (see how you can improve your credit score).
Please note that your credit history goes back six years, so you cannot have any missed payment or defaults on your file during this period.
Can you be a guarantor without being a homeowner?
Most of our lenders allow tenants and non-homeoweners to be guarantors
- See the loans available for non-homeowner guarantors here.
Some lenders offer better rates if they are a homeowner. The loan is not secured on your property, but lenders see homeowners as more stable and less risk.
Can I change my mind about being a guarantor?
You do have a right to cancel 👍
- Right to cancel
The Financial Conduct Authority which regulates loans and credit agreements in the UK provides consumers with the right to cancel a distance contract within 14 calendar days.
In other words, if the loan is canceled within 14 days of signing the loan agreement, then the loan agreement can be terminated and your liability as a loan backer ends.
If you or your borrower are looking to do this, please check your lender’s specific procedures regarding canceling the agreement and seek advice from moneyadviceservice.org.uk.
Please note that you may be liable for interest and fees for the time you, or the borrower, did hold the funds.
- Contact the lender
If this 14-day window has been missed, at the time of writing none of our lenders will allow a guarantor to be removed from a loan agreement once it has been signed, so the only option would be to terminate the loan agreement by fully repaying the loan.
It is always worth approaching your lender directly to ask them for any options that may exist, as lenders do sometimes change their terms and conditions.
Is there any benefit to me by being a loan backer?
The benefit to you is that you are helping a friend or family member access credit when they otherwise may be unable 👩🏻🤝🧑🏽
The guarantor loan is typically the most affordable type of loan for people with poor credit
- Representative APRs typically ranging from 29% to 55%.
- Compare that to other bad credit loans with APRs ranging from 135% to over 1,000%.
So, by becoming a loan backer you are helping someone potentially save a great deal of money.
I am the applicant’s spouse so can I be their guarantor?
How do I know if the borrower will repay the loan?
This depends on how well you know the borrower 🧑🤝🧑
Your relationship with the borrower and the steps they take to make you feel comfortable should help you to decide if they will repay or not.
They should be able to tell you:
- Why they want the money and what they are going to use it for
- What income they have available to make the repayments
- If they have taken time to show you that the money will be sensibly used
- That they have the income to cope with the repayments
This may make you feel more comfortable? You could also ask them to provide you with an income and expenditure statement.
Been asked to be a guarantor but unsure?
When someone asks you to do this, especially if you are close, then there may be pressure to say yes?
- Once you have signed the guarantor agreement, it may be impossible to have your name removed until the loan agreement has been paid back.
- To help build trust, ensure the borrower only gets a loan for the amount they need – i.e. if they need £1,000 they do not take a loan out for £2,000.
- Also, ensure they can comfortably afford the repayments – we would do this by using our loan calculator to estimate the repayments.
- Use the Citizens Advice Bureau’s Budget Sheet to map out their income and expenditure.
If, however, you are not comfortable then this is something you should not do.
Can you be a guarantor for more than one person?
Typically, no 👎
As they're required to make the loan repayments if the borrower stopped paying, if they were on more than one loan, this potentially gives them a high liability paying out for more than one loan at a time.
If they have a high income and good levels of affordability, all applications are taken on a case by case basis, we never say never, but it’s unlikely.
Is the loan secured against a guarantor’s home?
- These loans are unsecured
- They are not secured against property or any other form of asset
If however there was the situation where the borrower and guarantor defaulted on the loan and stopped paying, see