Guarantor loans and mortgages explained

13th July 2018

By Kurt Wood

Guarantors can be used for borrowing of every kind, from personal loans and car loans to business loans and mortgages. Here’s everything you need to know about guarantor loans in the UK.

What is a guarantor loan?

If you have a guarantor loan, it means you have someone (the guarantor) who agrees to pay your loan if you can’t make the payments. This acts as an extra security for your lender, so they’re likely to make allowances for a bad credit score.

Your guarantor co-signs the contract with you. They don’t pay anything as long as you don’t fall behind on your payments.

Typically, guarantor loans are a good option for borrowers who have bad credit scores, and therefore struggle to borrow money. If you’ve been turned down for a loan in the past, a guarantor loan could be a solution. You can use our online comparison tool to find the best guarantor loan for you.

What is the guarantor's responsibility?

The guarantor is the secondary party responsible for your debt. If you can’t keep up the repayments you’ve agreed with your lender, the guarantor is contractually obliged to step in and take over repayments. The lender will check they can afford to do this before approving a guarantor loan.

If you never fall behind on your repayments, your guarantor won’t have to pay anything.

What is a guarantor mortgage?

A guarantor mortgage works in the same way as any other loan: someone – a guarantor – makes a legal agreement to cover your loan repayments if you fall behind.

One of the biggest benefits of a guarantor mortgage is that, in many cases, it allows aspiring homeowners to take out a loan without the need for a deposit. This can be great if you’ve struggled to gather the funds to take the first step on the property ladder. Even though your guarantor is held responsible for any payments you default on, they won’t own any of your property.

The guarantor will need to something to use as security. This will either be their own home or a lump sum in a savings account.

How can I find a guarantor?

Guarantors are usually a parent, partner, family member or close friend. You need to trust your guarantor, and they need to trust you.

Your guarantor should be aged between 18 and 75, with a good credit rating and no problems with debt in the past. They also need to be able to repay the loan if you can’t make the repayments, and their income will be assessed to check this. A friend or a family member in a stable job with a good wage, accessible savings and their own property is the best option.

When to take out a guarantor loan

You should only look for a guarantor loan if you’ve run out of other options, because guarantor loans usually have higher interest rates, and this can make it more difficult to keep up your repayments. There are other loan options for people with bad credit.

But if you have a poor credit rating and you’re looking to rebuild your credit over time, this could be a great way of doing so. Used responsibly, a guarantor loan can help you mend your credit score and open up more borrowing possibilities in the future without the need for a co-signer. 

Before you decide, weigh up the pros and cons and think carefully about your situation.

Important things to consider before applying

There’s a lot to consider before you apply for a guarantor loan:

Can you afford the repayments? Before you speak to someone about being your guarantor, review your own finances to make sure you can afford the repayments. If you default, your guarantor will be left to pick up the bill. If they’ve secured their house against the loan, they could end up having it repossessed.

Are you borrowing too much? Having a guarantor doesn’t mean that you can borrow an unrealistic amount. Don’t borrow more than you need to.

Is the APR too high? Generally speaking, guarantor loans don’t come with most attractive interest rates. To get the best deal, be sure to shop around and compare the market.

Make sure your guarantor understands what they’re getting themselves into. They need to know their rights and responsibilities before deciding if they want to help you.

Where to find guarantor and bad credit loans

To find the best rates on guarantor loans, you need to shop around, but it’s worth speaking to your bank first. Not all mainstream banks offer a guarantor service, but it’s worth having the conversation. After that, you should shop around online to get a good sense of the market and to see what the typical APR rates are.

Compare guarantor loans

Used responsibly, a guarantor loan is a legitimate way of improving your credit rating and proving you’re a responsible borrower. If you want to search for guarantor loans in the UK, the best way to do so is to use a loan comparison site – like our one.

Our online comparison is free and easy to use. You can also use our loan eligibility calculator to see if you are eligible for loans from hundreds of lenders. This calculator will perform a ‘soft search’ of your credit profile, which won’t affect your credit rating at all.

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