What is a Guarantor Loan?

What is a Guarantor Loan?

A guarantor loan allows you to borrow £500 to £15,000 with the help of a guarantor to co-sign your loan agreement and they agree to cover any repayments in case you cannot make them. Guarantor loans are popular for those with bad credit histories or no credit histories and by adding someone with a good credit history and stable employment, it adds a lot of credibility to your application.

The best rates and applications most likely to be accepted are those who have guarantor that are homeowners. By having someone that lives in a home with a mortgage, they have likely already been through the credit rating and affordability process to prove their credibility – and also a person with bricks and mortar is going to be easier to contact in the future, compared to someone who could be renting or living in different places.

Guarantor loans for tenants are still available, but may simply incur high interest rates and lends might be stricter with who they approve.

Key Points About Guarantor Loans

  • Funds are available in 24 to 48 hours of applying
  • Borrow £500 to £15,000 (average amount is £5,000)
  • Loans are repaid in monthly instalments over 12 to 60 months
  • The funds are sent to the guarantor as a confirmation
  • The guarantor has a two week cooling period to send back the money if they don’t want to proceed
  • Guarantor cannot be changed once signed
  • Guarantor is only called upon for payments as a last resort (the main borrower will be contacted first)

How Much Does a Guarantor Loan Cost?

The representative APR for guarantor loans range from 39.9% to 59.9% based on how strong the guarantor is i.e credit rating, homeowner status. The average APR is around 49.9%, this seems to be the sweet spot for most guarantor lenders.

This works out to around 0.1% per day, compared to payday loans which are capped at 0.8% per day and reach up to 1,200% APR.

Loan Product Amount Borrowed APR Total Interest 6 months Repayment
Payday Loans £1,000 1270.10% £808.02 £1,802.02
Guarantor Loans £1,000 49.90% £618.36 £1,618.34
Credit Union £1,000 26.80% £63.50 £1,063.50
Balance Transfer Credit Card £1,000 2.90% £29.00 £1,029.00


Representative Example: 

The Representative APR is 49.9% APR (variable) so if you borrow £2,500 over 24 months at a rate of 41.16% p.a (fixed) you will repay £154.54 per month & £3,750.17 in total.


What are Guarantor Loans Used For?

Guarantor loans are used for lifestyle purposes and life-changing occasions, but more often than not, they are used by people with bad credit histories. The most common uses include:

  • Debt consolidation
  • Weddings
  • New car
  • Starting a business
  • Education fees
  • Home improvements


What is The Responsibility of the Guarantor?

The guarantor has a few key responsibilities which starts with co-signing the loan agreement and answering a few questions from the lender. Loan agreements are only these days, so signing it will not take very long, but it is essential that the guarantor understands their responsibilities which is mainly being called upon to pay for the loan if the main borrower cannot. This could be monthly repayments or the entire loan sum in full.

In addition, when the loan is funded, it is sent to the guarantor first as a safety precaution. This gives the lender peace of mind, knowing that their large loan sum of £5,000 or £6,000 is definitely being sent to someone with good credit first. The individual has a two week cooling period whereby they can send the money back to the lender without any charges in case they change their mind.

Who Could be My Guarantor?

The most commonly accepted guarantors are parents, siblings and spouses, provided that they do not have a joint bank account. You can also ask friends, family friends and work colleagues.

Be aware that you need someone who you can speak quite openly too about you finances, someone who won’t be offended if you miss the odd repayment and they are called upon and also someone that you will still be in touch with over the loan duration i.e 3 to 5 years. For instance, if you have a work colleague and move jobs – will you still be speaking to them in 5 years’ time? What if they get called upon to make a repayment for you – how will that go down?

Are Payment Automatically Taken From The Guarantor?

No, if you default on a payment, the lender will always take precautions to contact you first to make repayment by email, phone and letters. Only as a very last resort is the guarantor contacted for repayment and this could happen if you do not respond to any messages or go missing.

Can a Guarantor Be Changed? Can You Stop Being a Guarantor?

Unfortunately, once you have signed a loan agreement as a guarantor, you cannot stop being a guarantor or be replaced by another person. This is because the terms of the loan including the loan amount and loan duration are based heavily on the guarantor’s ability to back them up and maintain a strong credit history.

By leaving the agreement, it puts the entire loan arrangement out of sync. Fortunately, you have a two week period once it is funded where you can change your mind. Also, the funds are sent to the guarantor first, so you can always change your mind if you want to or give the loan to the borrower in stages to make things more manageable.

Other ways to stop being a guarantor are by clearing the entire loan agreement in full – so if you or the borrower repays the entire loan early, it will now be closed.

How Many Guarantor Lenders Are There in the UK?

There are approximately 12 guarantor lenders in the UK, with Amigo Loans holding around 90% market share in the industry, followed by Buddy, UK Credit, TrustTwo, George Banco and Bamboo Loans.

Lender Rep APR Loan Amount Tenants or Homeowners*
Amigo 49.90% £500 to £10,000 Both
UK Credit 39.90% £1,000 to £10,000 Both
Buddy Loans 49.90% £1,000 to £7,500 Both
George Banco 49.70% £1,000 to £15,000 Both
Trust Two 49.50% £500 to £10,000 Both
Bamboo Loans 49.70% £1,000 to £8,000 Both
1plus1 47.80% £500 to £10,000 Both
TFS Loans 39.90% £1,000 to £15,000 Just Homeowners
SUCO Loans 39.90% £1,000 to £15,000 Just Homeowners
Guarantor My Loan 48.9% £500 to £10,000 Both
Lendfair 29.90% £500 to £10,000 Both
MASA Loans 49.70% £1,000 to £7,500 Just Homeowners

What is the Guarantor Loans Industry Worth?

Figures from the Citizen’s Advice Bureau in 2013 showed that the guarantor loans industry was worth around £400 million and 53,000 loans were issued every year. In 2018, the industry value is likely to be closer to £1 billion based on guarantor loans being a viable option for bad credit customers and gaining more popularity over high cost borrowing such as payday loans.

In 2018, the market leader Amigo Loans floated on the stock exchange with a valuation of £1.3 billion.