Guarantor Loans Pros and Cons

A guarantor loan is a specific type of loan that requires the presence of a guarantor or loan co-signer, thus the term. Typically, guarantor loans are offered to people with bad credit rating, and the purpose of the guarantor is to have someone who will “guarantee” that the borrower will make payments, or else they will make the payment themselves.

Who Can Act as Guarantor?

Anyone can act as your guarantor, provided that the person doesn’t live in the same address as you, is not your spouse or partner, and is not financially linked to you. A guarantor may be a relative, friend, colleague, or anyone who really wants to help you but don’t have the financial capacity to do so. By acting as a guarantor, the person can help you obtain the financial aid that you need even if they can’t lend it to you directly.


Flexible repayment terms. Guarantor loans offer flexible repayment periods which may run between a few months to several years, depending on the amount you intend to borrow. Because of this, you may have the option to shorten or extend your loan based on what you can afford. Keep in mind though that the longer it takes to repay your debt, the more costly it will be in the long run.

No credit check on the borrower. Guarantor loans are usually meant for individuals with poor credit, however, this does not translate to absence of credit checks. The lender will still have to perform credit and affordability checks, not on the borrower, but on the guarantor.

Can improve the borrower’s credit. Your payment activities for your guarantor loan will be reported to credit reference agencies, meaning they will appear on your credit file as any normal loan. This will give you the opportunity to rebuild a once-damaged credit history.

No collateral. Guarantor loans are unsecured, meaning you will not be forced to surrender or sell any of your assets if you default on payments. However, this will cause a further damage on your credit rating.


Finding a guarantor is quite difficult. It’s not every day that someone will agree to become your guarantor. While you won’t have to stress over credit checks yourself, it is the guarantor who will have to undergo the tedious processes involved in a loan. They will have to provide and complete the necessary paperwork just to back you up.

Guarantor will shoulder the cost of the loan. If you fail to hold up to your end of the bargain, the lender will have no choice but to come after your guarantor. Your guarantor will have to take responsibility and pay for your outstanding balance. This can ruin your relationship with your guarantor so make sure you know what you’re getting into before proceeding.