Guarantor Loans

If you're thinking about searching for a loan, you might have wondered whether a guarantor loan could be an option for you to consider.

Our guide provides the answers to some frequently asked guarantor loan questions, including:

• What is a guarantor loan?
• Who can apply for a guarantor loan?
• How much money can you borrow with a guarantor loan?

Please note that Little Loans is a credit broker, working with a panel of trusted and responsible lenders. None of the lenders we work with offer guarantor loans. Instead, they provide short-term, personal, no guarantor loans from £100 to £10,000. Depending on the amount of money you apply to borrow, you could repay your loan across terms between 3 to 60 months.

What is a guarantor loan?

A guarantor loan is a type of loan that includes somebody else - your chosen guarantor. Your guarantor agrees to make any repayments if you find yourself unable to do so.

Important

While applying for a loan with a guarantor could provide a safety net for lenders and increase your chance of approval, you should never view a guarantor loan as a way to borrow money that you can't afford to repay.

A guarantor agrees to cover your repayments in the event of an unforeseen change in your financial circumstances, such as redundancy. They are not there to fund your loan because you've miscalculated your finances and have discovered, mid-term, that you can't afford to make your repayments.

Applying for a guarantor loan isn't a decision that should be taken lightly. You shouldn't apply unless you can be absolutely certain that your current financial situation allows you to comfortably make your repayments on time each month. Defaulting on your repayments will not only affect you, but your chosen guarantor, too.

Remember, repaying a loan should never leave you short when covering the cost of your essential monthly outgoings, such as rent or mortgage, bills, and food.

Is a guarantor loan a good idea?

If you're sure that you can make all your repayments in full and on time without relying on your guarantor, a guarantor loan could be one option to consider.

Before you apply for any type of credit, you should take the time to weigh up any other options that maybe available to you. If your need for funds isn't urgent, you may wish to take a step back and save up the money instead. While this will take longer, you will save money by not having to pay interest.

Alternatively, could a friend or family member help you out? Rather than agreeing to act as a guarantor on a loan, could somebody you know well agree to lend you the money you need? When borrowing money from a loved one, it's imperative to be mindful of the potential risk to your relationship. A clear repayment plan should be put in place before any money is exchanged, with both parties agreeing on the terms. It's a good idea to get the agreement in writing.

Can you get a guarantor loan with bad credit?

A guarantor loan could be something to consider if you're in need of money to plug a financial emergency but are worried that a history of bad credit could affect your chance of approval.

Please be aware that a loan designed for people with bad credit, including a guarantor loan, could come with a higher rate of interest. This will increase your monthly repayments and the overall cost of borrowing the money.

Who can be a loan guarantor?

Your guarantor should be somebody with whom you share a mutually trusting relationship, such as a family member or close friend. Talking about money can be awkward, so it's important that both of you feel comfortable openly discussing this topic with one another.

Please bear in mind that every lender will have their own eligibility criteria, but a guarantor must typically:

• Be over the age of 21. Please note that some lenders may also have an upper age limit.
• Have good credit history.
• Be a UK resident.
• Have a UK bank account and valid debit card.
• Be in employment with a regular source of income paid into their bank account; and
• Own their own property.

If someone has asked you to be their guarantor...

Before you agree to be a guarantor, you should be fully aware of the risks of a guarantor loan. This includes potential damage to your credit score and a breakdown of your relationship with the person you're acting as a guarantor for.

Please know that you are under no obligation to agree to be a guarantor if you feel uncomfortable or unable to fulfil the requirements.

While many of us would like to help a loved one in need, you mustn't do anything that could cause you financial strain. You shouldn't feel under any pressure to act as a guarantor, and nobody has the right to guilt-trip you for saying no. When it comes to money, making someone feel bad for doing what's right for their personal situation, or emotionally blackmailing them into making a decision, is financial abuse.

If you would like further information about financial abuse, or you're in need of some advice and support, please reach out to a charity such as Surviving Economic Abuse or Refuge.

Can I act as a guarantor for more than one loan?

You might be able to act as a guarantor for more than one loan, although this will depend on the lender. You should also consider the possible impact that this could have on your own financial situation. If you're acting as a guarantor for more than one loan, and both primary borrowers default on their repayments, you'll be responsible for making both repayments. Can you afford this? Would multiple repayments leave you short when covering your own financial commitments?

Again, careful thought and thorough research should be carried out before deciding whether acting as a guarantor is affordable for you.

Before you search for a guarantor loan...

Responsible lenders and brokers who are authorised and regulated by the Financial Conduct Authority (FCA) will appear on the FCA register. For your peace of mind, you may wish to check that a company is listed on the register before you share your details with them.

How will a guarantor loan affect my credit rating?

When you apply for a loan with a FCA authorised and regulated lender, you'll be required to undergo a creditworthiness assessment. This will include either a hard search or Open Banking. A hard search will remain on your credit file for up to 12 months. Be mindful of the number of credit applications you make with direct lenders; multiple hard searches within a short period of time will damage your credit score.

Your guarantor will also have a credit check carried out on their file; depending on the lender, this may be either a hard or soft search.

If you keep up to date with the monthly repayments during the term of your loan, there is a chance that your credit score might improve as a result. You'll also need to make sure that any other credit commitments are repaid on time.

If you miss or make a late repayment, your credit score will suffer, even if your guarantor steps in to cover the defaulted repayment on your behalf. Should your guarantor also fail to make the repayment, their credit score will be negatively affected.

Using a credit broker to search for a guarantor loan

A credit broker works with a range of lenders. Using the information you provide on the application form, a credit broker can scan their panel to search for a suitable loan for you. This is usually done using soft search technology, which won't impact your credit score in any way.

Please be aware that if you search for a loan through a credit broker and choose to make a full application with a lender you've been matched with, a creditworthiness assessment will be carried out by that company. This could include a hard search or Open Banking. A hard search will remain on your credit file for up to 12 months and multiple hard searches within a short period of time could have a negative impact on your credit score.

Open Banking is a secure procedure carried out by an authorised third party, such as a lender. With your consent, the third party is able to access a read-only view of your recent financial history through your online banking account. Only you can control who views your account and you can withdraw your consent at any time.

Making repayments on a guarantor loan

When you take out your guarantor loan, you'll receive a schedule of repayments from the lender, letting you know how much each repayment will be for and when the money will be collected from your bank account. It's very important to stick to this schedule; as discussed, a late or missed repayment will harm your credit score.

Search for a no-guarantor loan with Little Loans

While we do not currently work with any lenders of guarantor loans, you can use Little Loans to search for a no-guarantor loan up to £10,000 if you:

• Are over the age of 18;
• Are a UK resident;
• Have a UK bank account with a valid debit card; and
• Have a regular source of income paid into your bank account.

Little Loans, and all the lenders we work with, is authorised and regulated by the FCA.

If you're worried about your finances...

Free, confidential advice on a range of financial topics, including debt management, can be accessed through a variety of charities and organisations such as StepChange, MoneyHelper, Citizens Advice, and National Debtline.