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When you have bad credit, your loan choices in the UK narrow quickly. The banks often turn you down before you can even explain your situation. The guarantor loans give you a route to borrowing when others close their doors. A third party agrees to cover your debt if you fail to make repayments. However, you need to know if this loan is suitable for you or not.
Who Can Be A Guarantor?
You will get guarantor loans if you have been turned down for every other form of borrowing. Most people also have almost no idea who actually qualifies to be a guarantor until they get halfway through an application and get rejected for a reason.
This is the part that catches 9 out of 10 applicants. You will see the basic requirements listed on almost every comparison site, but almost none of them mention the unwritten rules that actually decide if your application will be accepted.
The standard requirements all lenders use are:
- Must be UK resident, aged 18-75 (varies by lender)
- Good to fair credit score required
- Steady income or pension
- Often must be a homeowner (not always)
- Cannot be financially linked to you (no joint accounts)
- Usually a friend, family member, or colleague
There are also some unlisted rules that lenders will rarely publish:
- Most lenders will quietly prefer anyone over the age of 27
- Someone on a full state pension is almost always accepted
- They do not need to earn a lot, just enough to cover the payment
- Ex-partners will be rejected even if you have no current links
- A long-term colleague is usually accepted just as easily as family
This is the single most common reason applications get declined. Most people first ask their partner, and have no idea that even an old joint phone bill from 4 years ago counts as a financial link.
There is no way around this rule with any reputable direct lender. It is also one of the only forms of credit that will be considered even if you have a very poor credit score, as long as your guarantor meets the criteria.
Typical Loan Terms in the UK
There is very little real difference between 90% of the active lenders operating in the UK right now. The standard terms are:
- Loan amounts: £1,000 to £15,000
- Repayment terms: 1 to 7 years
- APR ranges from 29% to 49.9%
- Monthly fixed repayments
- All legitimate lenders are FCA-regulated
- No fees for early repayment by law
You will see a lot of people complain about the APR on these loans. It is indeed far higher than the 7% to 25% you would pay on a standard personal loan.
What are Some Risks to the Guarantor?
Most people who sign as a guarantor do not understand what they have agreed to until something goes wrong.
Full liability for the debt
The lender can choose to contact your guarantor if you miss a single payment. They can demand the full remaining balance from the guarantor if you stop paying. They do not get to argue that you should be the one paying or that you lied to them.
Impact on their credit file
Every missed payment will be recorded on both your credit file and the guarantor's. CCJ will be issued against both of you if the debt is not resolved. That mark stays on both files for 6 full years, even if the guarantor pays off the entire balance the next day.
Long-term consequences
Even one missed payment can make it much harder for your guarantor to get a mortgage, car finance or any other loan for years. They also cannot ask to be removed as guarantor at any point, for any reason, until the loan is fully paid off. They have zero control over how you manage the payments for the entire term.
Alternatives to Guarantor Loans
You should never agree to a guarantor loan as your first option. It is always the option you pick after you have checked every other possible route first. There are almost always other choices that carry far less risk.
Secured loans
If you own a car or van that you have fully paid off, you can usually get a secured loan with a lower APR than a guarantor loan. The downside is that you will lose the vehicle if you cannot keep up with the repayments.
Bad credit credit cards
A bad credit card will help if you only need to borrow less than £1500. If you pay the balance off each month, you will pay no interest, and you can improve your credit score at the same time.
Budgeting loans
You can apply for an interest-free budgeting loan from the DWP if you are claiming any of the main qualifying benefits. There is no credit check, no interest and no fees, and you pay it back in small deductions from your benefits.
How to Decide If It's Worth The Risk?
A guarantor loan is not good, and it is not bad. But it is the only common form of credit that does not just put your own future at risk. It puts the future of someone else, and your entire relationship with them, on the line.
There are basic checks you should run before you agree to proceed:
- Calculate the total repayment cost with interest
- Be completely honest with your guarantor about your finances
- Check if you can afford the monthly payments after all your bills are paid
- Look at all the alternatives first
- Only borrow exactly what you need, no more
- Always confirm the lender is FCA authorised
Sit down and calculate the total amount you will pay back over the whole term. For a £5000 loan over 5 years at 49.9% APR, you will pay back almost £12000 in total.
The biggest mistake most people make is assuming that the worst-case scenario is a very poor credit score. It is not. The worst-case scenario is that you miss three payments, your guarantor gets a CCJ, they cannot get the mortgage they have been saving for for 10 years, and you never speak to each other again.
Conclusion
You must think carefully before choosing a guarantor loan. It can help you when few options remain, but it also creates serious responsibility for both you and your guarantor. You should check every other route first and only borrow the amount you need. If you proceed, you must commit to the repayments to protect the trust and money of the person backing you.
