Traditionally, getting your hands on a loan if you have a lower than average credit score has proved tricky. But there’s a loan out there that’s changing that. Say hello to the guarantor loan: as the name suggests, you’ll need a guarantor (someone who agrees to pay your debt if you can’t) if you choose to apply for this product.
We offer guarantor loans in partnership with amigo, UK Credit and TrustTwo to open up the world of credit to people who otherwise might be shut out. So whether you're looking to buy a new car or it's time to do up the kitchen, find out how the guarantor loan works and how to decide whether it’s the right option for you.
The guarantor loan explained
With a guarantor loan, you must find someone who trusts you to repay the debt and, crucially, agrees to repay your debt for you if you’re unable to. If you’re not sure whether you’ll be able to afford the repayments in the first place, we’d recommend not applying for a loan until you’re in a more comfortable position financially; a guarantor loan should really be a last resort.
As you might have guessed, the guarantor element is why this loan is available to people with lower credit scores. Historically, lenders have been wary of people with low credit scores as they can be seen as risky borrowers. So having a ‘back up’ with a more stable credit history to agree to repay your loan if you can’t sweetens the deal for lenders.
The catch is that guarantor loans tend to come with higher interest rates than personal loans (although they’re still often lower than the rates you’d be offered on a higher-cost short-term loan). For example, you’ll usually pay a rate between 40% and 50% on a guarantor loan. To unlock better interest rates, it might be worth taking the time to build up your credit score, which will widen your pool of available loans.
The upside is that if you make your loan repayments on time and in full, you should see your credit score improve. In time, this should open up more loan possibilities for you as you’ll have proven yourself to be a reliable borrower. On the other hand, if you fail to make your repayments, this could have a negative impact on your credit score, which could damage your chances of being accepted for credit in the future.
Who can be your guarantor?
You can ask anyone you trust to be your guarantor - usually a close friend or family member. Unfortunately, you can’t ask your husband/wife to be your guarantor. Obviously this is quite a big ask, which is why many people ask a parent to fill the role. It’s important you feel comfortable discussing your finances with this person - after all, it’s likely they’ll want to be confident in your ability to keep up the repayments.
The requirements for being someone’s guarantor vary by lender, but generally a guarantor must:
- Be over the age of 18
- Be a homeowner
- Have a good credit history
If you’ve asked someone to be your guarantor but they’re not sure whether it’s a responsibility they’d like to take on, they can get clued up on the requirements and the risks in this article. Remember they must be capable of repaying your loan if necessary, so they should read the terms and conditions carefully before signing anything.
Before you apply…
Because guarantor loans usually come with higher than average interest rates, it’s worth exploring your options before applying to see if you could save money. The best loans are often reserved for people with high credit scores, so why not try to improve your score before applying? Follow our 10 steps to a better credit score before checking your loan offers - you never know what deal you might find.
How to apply for a guarantor loan
Visit your ClearScore offers to see a range of loans we think will suit you. Be sure to look at the representative APR when comparing deals - don’t forget that only half of people will get the advertised rate, and the other half will be offered a higher rate. We’ve made a list of everything you should consider when applying for a loan - check it out here.