Securing a loan can be challenging if you have bad credit or no credit history. Some lenders will only provide a loan to someone with poor credit, for example, if they have a guarantor. This reduces the risk to the lender. However, using a guarantor loan needs careful thought.
Here, we look at:
Who can be a guarantor for a loan?
Pros and cons of guarantor loans
How many guarantor loans can you have?
Guarantor loans and financial abuse
Please note – HSBC doesn’t offer guarantor loans.
With a guarantor loan, you borrow money from a lender and repay it in monthly instalments. However, if you fail to make the payments, your guarantor is legally required to pay back the loan for you.
Guarantor loans can be secured or unsecured. In a secured guarantor loan, the money you borrow is linked to an asset the guarantor owns, like their house. This offers an extra layer of security for the lender but more risk for the guarantor.
Some lenders will have their own rules about who is eligible to be a guarantor.
Generally, a guarantor must:
They’ll also need to provide evidence that they could potentially pay back the loan, such as proof of employment, income, or home ownership.
Like any financial arrangement, having a guarantor for a loan comes with a set of advantages and disadvantages.
Having a guarantor can increase your prospects of getting credit. However, there are no guarantees.
Repaying a guarantor loan can also help you build your credit score, as long you meet the repayments.
Guarantor loans are risky for the guarantor since they’ll be legally responsible for repaying the loan if you can’t. This can lead to financial strain. If the loan is secured, they could also lose their home.
Not making the loan repayments on time can also harm the credit rating of both you and the guarantor. This can potentially cause tension in your relationship.
Guarantor loans can be more expensive than other types of credit, and often have higher interest rates.
It’s possible to have multiple guarantor loans, but each lender will have their own policies.
Having multiple guarantor loans means additional financial responsibilities.
There are some things to consider before applying for a loan. If you’re considering multiple loans, it’s even more important to assess your income, loan fees, and repayment period to make sure you can handle the increased financial commitment.
If you’re using the same guarantor, they need to be comfortable guaranteeing multiple loans on your behalf. Being open and honest about what it involves can help avoid unexpected complications.
You can be a guarantor for multiple loans, but this means taking on more financial liability, which could affect your creditworthiness and financial resilience.
You should consider whether you can comfortably afford to repay the amount owed before agreeing to guarantee multiple loans.
Once you’ve signed an agreement and the loan has been paid out, you can’t remove yourself as the guarantor.
You can only change your guarantor during the loan application process. Once the loan has been paid out, you can’t change your guarantor.
If someone if pressuring you to act as a guarantor for a loan, this is a form of financial abuse. If you think you might be a victim, we're here to help you get back to managing your money yourself.
