Guarantor Loans 101

It is only recently that guarantor loans have become more widespread in the UK. This is mainly because of the problems that tenants are currently experiencing arranging finance as a result of the credit crunch and lenders tightening their criteria. The situation is exagerated even more if there is any bad credit in their profile.

What is a Guarantor Loan?

A guarantor loan is a form of unsecured loan where an agreement is made between a third party and the Lender that ensures that the loan will be repaid, should the borrower be unable to meet the repayments. The agreement is enforcable by law.

Who Are They Best Suited To?

Because the loan is not secured against a property or car or anything else, guarantor loans are particularly suited to anyone over 18 years of age but particularly:-

Non-homeowners, whether private tenants or local authority

Students or people living at home with family or with relatives

Homeowners with little or no equity in their property

People with a poor credit record or have been refused credit elsewhere

Will a Bad Credit History Affect Me?

No. There is no credit check carried out on the applicant with a guarantor loan, but there is on the guarantor, that is why the guarantor needs to have a good credit record and be a homeowner. So having a bad credit history will not prevent you from obtaining a guarantor loan. On the other hand if you are in an IVA, debt mangement plan or bankrupt you will not qualify for a loan.

How Much Can You Borrow?

With a guarantor loan you can borrow up to £5,000 depending on individual circumstances, over a period of 48 months (4 years)

Who Can Act as a Guarantor?

Anybody can be a guarantor so long as they are a homeowner aged 21 + and a homeowner with a clean credit record. The guarantor is not linked to the loan so the debt does not stand as a debt against their name, nor does it affect them in obtaining credit in the future.

A guarantor can be a member of your family (other than spouse), a work colleague, a friend or anyone else that is will to assist you in getting a loan. One thing that can gain the confidence of a prospective guarantor is for the one borrowing the money (debtor) to sign an indemnity. This is a contract that exists between the debtor and the guarantor which states that the debtor will repay the guarantor, should the guarantor be asked to pay back the loan on behalf of the debtor.

How Long Before My Loan Pays Out?

The time it takes will be dependent on how long you take to provide all the relevant documentation. Once the lender receives the required paperwork back from you, it will take around 3 - 5 days for you to receive the loan.

In Summary

A guarantor loan can be useful if you need to arrange finance and you have a bad credit history. However before you sign the paper work you should make sure that you fully understand what you are getting yourself into. It is an expensive way to borrow money, and if you are unable to maintain the payments your guarantor will be required to pay the loan back on your behalf.


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Steve Smith has worked in the UK finance industry for a great many years and writes for a number of websites including Guarantor Loans Arranged, read more of his articles now at http://www.guarantorloansarranged.com/information/