Guarantor Loans in the UK: How They Work and When They’re Suitable

This type of borrowing carries significant financial responsibilities for both the borrower and the guarantor. A guarantor is legally responsible for repaying the loan if the borrower does not; the credit file of both parties may be affected; missed payments may lead to legal action.

Money Debt & Credit works with FCA-authorised partners and will always encourage you to get independent, regulated advice before you commit to guarantor borrowing. We present objective information below so you and anyone considering acting as a guarantor can decide with eyes open.

What Is a Guarantor Loan?

A guarantor loan is a form of personal borrowing where a third party (the guarantor) agrees to cover repayments if the borrower cannot pay. The loan itself is usually unsecured (no asset is taken as security) but the guarantor’s legal promise gives the lender extra protection and can make it easier for people with limited or poor credit histories to access credit.

Lenders ask for guarantors because the guarantor’s obligation reduces the lender’s risk of non-payment. For borrowers with thin or adverse credit files, a guarantor increases acceptability; for guarantors, this creates a binding legal commitment to repay if the borrower defaults. MoneySavingExpert and consumer credit sites emphasise that guarantor commitments are serious legal obligations, not informal promises.

How Do Guarantor Loans Work?

Application, credit checks, affordability

The borrower applies and names a guarantor. Lenders commonly run identity and affordability checks on the borrower and the guarantor. Some lenders perform a soft credit check initially, but many perform a hard search on the guarantor and/or borrower before lending, which can show on credit reports.

Lenders must satisfy themselves that the borrower can reasonably afford repayments, and that the guarantor is able and willing to cover payments if needed. This is part of the regulated affordability assessment for consumer credit.

Role and legal responsibility of the guarantor

A guarantor signs a legal agreement — a guarantor agreement — making them legally responsible for repaying the loan if the borrower fails to do so. That legal responsibility can include the full outstanding balance, interest and any enforcement costs if payment is not made. It is essential that guarantors understand they are entering a contract that can be enforced in court.

Loan payments, interest, term, missed payments

Missed payments will normally be reported to credit reference agencies and will negatively affect the credit file of both the borrower and the guarantor; persistent non-payment can lead to debt collection action and legal proceedings against either party.

Guarantor loans can carry high APRs, especially where the borrower’s credit history is poor. Interest, fees and the loan term determine the monthly repayment.

Who Can Be a Guarantor?

Requirements and eligibility

Typical lender requirements for a guarantor include being over 18, a UK resident, having a stable income and a good credit record. Many lenders require the guarantor to be a homeowner or in stable employment to increase confidence that they can cover payments if required. Lenders differ in criteria, so check the specific lender’s terms.

Who cannot be a guarantor

People typically excluded from acting as guarantor include those without a stable income, people with poor credit, young adults without financial history and anyone under 18. Lenders will often refuse guarantee applications where the guarantor’s profile increases the risk of future non-payment. The guarantor must be able to afford the obligation without relying on uncertain income.

Pros and Cons of Guarantor Loans

Benefits

Can provide access to credit for people with bad or limited credit history.

May be quicker to arrange than more complex insolvency solutions if you have an eligible guarantor.

Can enable consolidation of small debts if used responsibly and if interest/term profile is affordable.

Risks and disadvantages

The guarantor is legally responsible for repayment; this can put relationships under strain and exposes the guarantor to real financial risk.

High cost: guarantor loans aimed at those with poor credit can carry high APRs and fees. See the APR example section below.

Missed payments may lead to legal action and will often be recorded on both parties’ credit files, harming future borrowing chances for both borrower and guarantor.

How Much Do Guarantor Loans Cost? (APR, fees, examples)

Typical APR

Market products vary, but loans aimed at borrowers with adverse histories can have high APRs. APRs in the lower to mid-double digits for good credit can rise sharply for higher risk lending. Consumer guides note that APRs can be substantial for high-risk products.

Example repayment table

Below are illustrative examples for a typical bad-credit scenario — £3,000 borrowed over 36 months — at two sample APRs often quoted for higher-risk products. These are worked examples to show scale and should not replace lender quotes.

APR (example)	Monthly payment	Total repaid	Interest paid
39% APR	£142.58	£5,133.06	£2,133.06
59% APR	£179.37	£6,457.21	£3,457.21

(Calculations based on standard amortisation: monthly payment = P × r / (1 − (1+r)^−n), where r = APR/12 and n = months.) These examples show how high APRs dramatically increase total cost. A guarantor does not normally reduce the APR — this is not a secured loan — it simply reduces lender risk via the guarantor’s legal obligation.

Why guarantor loans can be high-cost

Because lenders are lending to higher-risk profiles, they price that risk into APR and fees. Even with a guarantor, lenders may apply high rates to protect against administration, default and enforcement costs. Always obtain a full cost schedule (APR, fees, default fees and early-repayment charges) before proceeding.

Guarantor Loans for Bad Credit

Why they’re popular

They are often one of the few mainstream ways for people with poor credit to access personal loans without using property as security. The guarantor’s commitment can enable lending where an unsecured loan would be refused.

Why they’re risky

Guarantor loans shift risk to a third party. If the borrower falls behind, the guarantor must pay. This can create financial distress for the guarantor and strain relationships. The combined credit-file impact for both parties can have long-term consequences.

What to consider before applying

Does the guarantor fully understand the legal responsibility and potential consequences?

Can the borrower realistically keep payments up?

Are there safer alternatives such as a Debt Management Plan (DMP), an IVA (if debts are unmanageable) or a secured homeowner loan only if you fully understand the risk to your property? (See the alternatives section below.)

Safer Alternatives to Guarantor Loans

If the reason for considering a guarantor loan is to manage existing debt or to consolidate, explore these safer, regulated options first:

Debt Management Plan (DMP) — informal consolidation through a single affordable monthly payment to unsecured creditors; no guarantor or asset security required.
Individual Voluntary Arrangement (IVA) — formal, legally binding insolvency solution that can include debt write-off and creditor protection if accepted.
Secured homeowner loan — only for homeowners willing to use property as security (this carries repossession risk).
Full & Final Settlement — negotiate lump-sum settlements with creditors if you have one-off funds.

These alternatives may avoid the guarantor’s legal exposure and are worth investigating before offering someone a guarantor role.

Is a Guarantor Loan Right for You?

When it may help

You need short- to medium-term access to credit and have no other reasonable borrowing route.
You have a trustworthy guarantor who understands and accepts legal responsibility and can genuinely afford to repay if needed.
The borrowing is for a purpose that you can reasonably expect to repay (not to mask deeper unmanageable debt).

When you should avoid it

If the borrower is already struggling with multiple debts — consider DMP or IVA first.
If the guarantor cannot afford the full balance or would be financially ruined by stepping in.
If the APR and total cost are excessive compared with alternatives, or if the borrowing purpose is non-essential.

Main message: guarantor loans are high-risk borrowing and should be a last resort for people who have truly assessed safer, regulated options.

How to Apply for a Guarantor Loan with Money Debt & Credit

We do not encourage unsuitable borrowing. If you want to explore a guarantor loan responsibly, we follow a clear, regulated process:

Step-by-step

Contact us for a free, confidential review of your situation and objectives. We assess whether a guarantor loan is appropriate or whether a debt solution would be safer.
Quick fact-find and affordability check. We explain typical guarantor criteria, likely APR ranges, and the potential effect on credit files. We will ask about guarantor candidates and advise on suitability.
Introduce FCA-authorised lending partners if a guarantor loan is a viable option. We work only with regulated lenders and ensure you receive full information and a proper credit agreement before you sign.

We stress FCA compliance: all consumer credit activity should be from FCA-authorised lenders; always verify authorisation on the FCA register. We will only work with partners meeting regulatory standards. Learn more about us.

Guarantor Loans FAQs

Do guarantor loans affect both credit scores?

Yes. Missed payments and defaults are normally recorded on both the borrower’s and the guarantor’s credit files and will harm both parties’ credit ratings.

Can I remove myself as a guarantor?

Removing a guarantor after the loan is agreed is usually only possible if the lender agrees and often requires a replacement guarantor or refinancing — lenders rarely permit unilateral removal. Check your guarantor agreement and speak to the lender immediately.

Can I be a guarantor with bad credit?

Most lenders require guarantors to have reasonable credit and an ability to repay; those with poor credit are commonly refused as guarantors because they increase the lender’s risk.

What happens if the borrower doesn’t pay?

If the borrower misses payments, the guarantor will be called upon to pay. Continued non-payment can lead to collections activity, court action and enforcement against the guarantor, with corresponding credit-file damage. This is a legal obligation under the guarantor agreement.

Are guarantor loans regulated by the FCA?

Yes — consumer credit is regulated. Lenders and brokers operating in the UK must, in almost all instances, be FCA-authorised or operate under a specific exemption; always check firm status on the FCA register. Feel free to contact us.

Are guarantor loans a form of high-cost credit?

They can be, especially where APRs are high. The total cost may be significant; shop around and compare regulated lender offers and consider safer alternatives first.

Making an Informed Decision Before Entering a Guarantor Agreement

Guarantor borrowing can feel like a straightforward way to access credit when traditional lenders say no, but the legal and financial weight placed on both parties means the decision demands careful thought. A guarantor loan binds two people into a shared financial outcome, and any missed payment can have long-lasting consequences for the borrower’s and guarantor’s credit files, finances and personal relationships. Before taking that step, make sure the guarantor fully understands what they are agreeing to, assess whether the repayments fit realistically within your monthly budget and compare the total cost with safer, regulated alternatives. If you are unsure whether a guarantor loan is appropriate, Money Debt & Credit can help you review your situation confidentially and explore all regulated options so you can decide from a position of clarity rather than pressure.