Guarantor loans are a type of finance designed for people with bad credit scores. They are typically a kind of unsecured loan where a second party, such as a friend or family member of the borrower, signs to agree to be responsible for paying off the debt if the borrower fails to make their repayments.

About guarantor loans

Although choices are more limited when compared to the number of lenders of traditional good credit personal loans, there are a range of guarantor loan lenders so it still worth shopping around the different lenders to try and find the best deal.

The Annual Percentage Rate (APR) a borrower may be offered on a guarantor loan will vary by lender, the loan amount, period and other factors. Despite the added level of security to the lender offered by guarantor loans they do still have higher Annual Percentage Rates than you would find with personal loans for a borrower with a good credit score. However, a borrower may be able to borrow more with a guarantor loan than they would with other types of bad credit loan due to the guarantor aspect. 

It is vital that the guarantor fully understands the associated risks with becoming a guarantor; it is not a decision that should be taken lightly. If the borrower misses a payment on their loan it becomes their responsibility to repay the lender, and if the loan is secured against their home, then there is a risk that the lender could repossess it if they cannot repay the loan.

General Rules for who can be a guarantor

Before taking out a guarantor loan

A borrower considering using a guarantor loan to secure finance may wish to also consider alternative options and products before committing to a guarantor loan. For example if the borrower has the funds in their savings they may want to use these instead, this is because the interest rates they earn on their savings will probably be considerably less than the interest they would be charged for a bad credit loan of the same size.

It may also be wise to carry out a soft credit check before taking out any kind of finance to try and find out exactly which products may be available to a borrower.