Guarantor personal loans can open the door to borrowing if you’re struggling to get approved for a loan by yourself. This type of financing requires you to have the support of a friend or family member who agrees to cover your payments if you’re unable to pay.
What is a guarantor personal loan?
A guarantor personal loan is a personal loan that has been guaranteed by someone else. The guarantor can be anyone, including your parents, siblings, or a trusted friend, who agrees to accept financial responsibility if you can’t pay back your loan.
Who should consider a guarantor personal loan?
Guarantor personal loans can be a solution for financially independent people who are not eligible for a personal loan, most likely because of a poor credit report or low income.
Who can be a guarantor?
Generally, anyone can be a guarantor as long as there is no financial link between you and the guarantor. For instance, your spouse may not be able to act as a guarantor if you have a joint bank account.
In most cases, the guarantor is someone you know very well, such as a close friend or family member. It is common for parents to act as guarantors for their children. Siblings may also act as guarantors as long as they meet the lender’s conditions regarding the minimum age, credit history, and income.
What are the risks for the guarantor?
When someone agrees to act as a guarantor, they become responsible for making the repayments if the borrower cannot pay.
Once you’ve agreed to be someone’s guarantor and signed the loan agreement, you will not be able to remove yourself until the loan you’re backing is paid off in full. As a guarantor, you may also be unable to access funding yourself until the loan you’re backing is paid in full, which can mean up to five years without the ability to get a loan yourself.
The guarantor’s assets may also be at risk if the borrower was granted a secured loan. This is not the case for unsecured guarantor loans, but the lender may still pursue the guarantor for any unpaid debt.
Ultimately, the guarantor’s credit history can be adversely affected by any late or missed payments if the borrower defaults and the guarantor is not able to pay.
- Joint loan application. A joint personal loan is a type of loan in which two or more people are responsible for the debt. This solution is suitable if you want to share the debt responsibility with a spouse, partner, family member, or close friend. The main advantage of a joint loan is that you can borrow more money, and your application is more likely to be approved.
- Secured loans. It’s possible to get a secured loan without a guarantor, but you will have to secure your loan with an asset (such as your home, car, or other valuable items).
- Borrow from family or friends. If you need a small amount of money to cover an emergency or unexpected bill, borrowing from family or friends is less risky than applying for a guarantor personal loan. Just make sure you agree terms and stick to them.