Guarantor Loans 

Getting a loan can be a difficult process for some people, especially if they have a history of bad credit or have no credit history at all.

A guarantor loan can be the way out; as it can assist you to get the money you’re in need of, even in instances when you can’t get credit in your name alone.

The idea is that a person you trust – typically a friend or a relative agrees to stand in as a guarantor for you. That person promises to cover your loan payments if you fall behind.

Guarantor loans are not something new; that was how banks use to lend before the introduction of computer credit scoring; so it is a system that is trust-based. 

Picture of Friends

Guarantor Loans
Do I need to get a guarantor loan?

In most cases, these kind of loans are suitable for people that are struggling to secure a loan through the normal means – either because they’ve been rejected somewhere else, or they have poor credit history. These loans also offer an avenue to borrow large amounts that would not be able to be paid normally with poor credit. 

Who can stand in as a guarantor?

Guarantors are mostly limited to close family members – usually parents, siblings or grandparents. But some lenders can allow anyone to stand in as a guarantor, as long as they have no financial link to you (i.e. a husband or wife), such as your colleague or friend. They need to be between the ages 18 to 75, and have a good credit history to be accepted. Checks on a guarantor are mostly similar to normal credit checks – they’ll be required to provide their bank details, bank statements and their ID. 

Having this in mind, here are some things you need to know if you’re considering standing in as a guarantor for somebody:
  • Make sure you know them well - This might seem obvious, but you’ll be shocked at how some people are good at cunning friends to be their guarantors. Before agreeing to vouch for someone, ensure you know them extremely well. If you’re having any doubts about their ability to pay their loan on time, don’t vouch for them. If they fail to pay their loan and they disappear, you’ll be the one left to pay.
  • Ask them their motives for borrowing - Although it is not advisable to pry into people’s privacy, in this instance, you’re entitled to find out what they need the loan for. If the reason does not seem legitimate, then you should let them know. Also, if you feel the individual is borrowing money far beyond their means, then you shouldn’t agree to be their guarantor.
  • Could you be of financial assistance to them? - If they feel comfortable asking you to stand in for them, then it is possible you are close. If you are in the position to lend them the money they need or a large chunk of it, then this could be a better alternative. This will mean less time to pay, less interest rate, and less risk. 

How to protect yourself as a guarantor

Being a guarantor for someone should be taken seriously; it is riskier than giving a character reference. Have it at the back of your mind that if the borrower fails, it is legitimate for the lender to come after you.

When standing in as a guarantor, ensure you get a copy of all documentation involved, so you know the lender’s payment schedule. Also get a copy of the written and signed guarantee contract. Get these copies at least 15 days after they’ve been signed. In an instance when the applicant fails and the lender comes for you, ensure they send you a copy of the repossession notices.

Pros and cons of guarantor loans

Even though guarantor loans are the best alternatives for those having no credit history, that doesn’t mean there are no disadvantages. Here is a look at the pros and cons of guarantor loans.


The interest rates are cheaper

Most of them offer flexible terms of repayment

• You can borrow a larger amount


The guarantor will be required to pay off the loan if the borrower fails. Before contacting the guarantor, the lender will make all efforts to get the payments from the borrower.

• In the event of default, it can lead to credit score problems for both the borrower and the guarantor. The implications of a guarantor loan can be worse than just cash. If the lender fails in collecting payments from both the borrower and the guarantor, it will affect their credit ratings. 

• It can lead to broken relationships: This is probably the ugliest cons of a guarantor loan. Problems can arise, mentally, financially and emotionally if the applicant fails to fulfil their promise. 

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