If You Have Bad Credit and Need a Loan, a Guarantor Can Help

Having a guarantor can increase your chances of being approved for a loan. If you’ve got bad credit and don’t have a guarantor, alternatives include logbook loans and payday loans for poor credit.

It’s easier to borrow money if you’ve got a good credit score. A good credit score increases trust and can raise your chances of approval. Those with the best credit scores have access to better borrowing opportunities.

If your credit score is low, you’ll find that your options are limited. Poor credit closes doors, making lenders more likely to reject your application for a loan.

What Is a Loan Guarantor?

A guarantor can help you get approved for a loan by signing the agreement with you. If you cannot afford the loan repayments, it would become their responsibility. They would need a high credit score and they may need to be a homeowner.

A guarantor – someone with a better credit rating and perhaps their own home – can help by backing your loan. If you can’t find a guarantor, you’ll need to look for loans where you don’t need a guarantor at all. With a low credit score, read on to find out more about the types of loans you can access.

Continue reading to get all the details on how guarantors work and what you can do if you can't find a guarantor.

Looking for other information on Loans? This guide has info on 'What loans are available where you don't need a guarantor? We have also writen extensively about:

• - What loans can i get while on universal credit?
• - What loans accept bad credit history?
• - What loans are available when unemployed (personal / Student)?
• - What loans are available where everyone is approved?

We update all our guides regularly. If you are researching loans and we haven't got an exact guide that helps you, keep coming back as we update daily.

Benefits of a Loan Guarantor

If you’re lucky enough to find a guarantor, there are benefits to going down this route. Your application for a guarantor loan is more likely to be successful.

As lenders know that they’ve got another way to get their money back, most will offer slightly better loan rates and may process your loan fairly quickly.

A guarantor will be someone that trusts you and believes that you’ll keep up with repayments. Guarantors should have a much better credit score, and many lenders will require guarantors to own their own homes.

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Drawbacks of a Loan Guarantor

Guarantors are backing your loan, putting their money on the line. Whilst you’re the one in debt, they will have to pay it back if you can’t keep up with repayments.

Finding a guarantor isn’t easy. It can be hard to find someone that trusts you enough or is convinced that you’ll keep up with repayments. Very few people are comfortable taking on a debt that they didn’t want or need, and even fewer are happy to do that when they won’t get the money in the first place.

Often, a guarantor will be someone that would have lent you the money directly from their pocket, but feels more comfortable if you borrow from elsewhere and they’ll hopefully not need to be involved.

One of the hardest parts of finding a guarantor is admitting that you need to borrow money. Debt’s a taboo subject, and admitting you need money can be a source of shameful feelings. The first hurdle – asking for help – is often the hardest of all. Then, you’ll need to convince that person that you’ll keep up with your repayments.

Many people don’t have someone in their life that is happy to be a guarantor. Or, they don’t feel comfortable asking in the first place. If that’s your situation, you’ll need to consider loans where you don’t need a guarantor.

Loan Guarantor Problems – The Statistics

In 2017, the Citizens Advice Bureau reported a 40% year-on-year increase in the number of people who’d got in touch with problems regarding a guarantor loan, with a total of 2,000 cases.

Most of these were guarantors who had agreed to the loan but hadn’t realised the implications when the debts were passed onto them due to missed payments.

According to the Citizens Advice Chief Executive, Gillian Guy

Friends and relatives are unknowingly trapping themselves with enormous debts. Agreeing to guarantee a loan for someone else carries a big risk of being hit with an unexpected debt - but too often people are unaware of the danger they are placing themselves in.

Source: Citizens Advice

Alternatives to Guarantor Loans

If your credit score is poor and you need to borrow money, look for loans where you don’t need a guarantor. For people with bad credit, these typically fall into one of three categories.

Payday loans are short-term loans with relatively high-interest rates. You can get approved for payday loans with bad credit but could end up paying back double what you borrowed in the first place. Payday loans are expensive, and they’re not intended for long-term borrowing, so you’ll need to keep up with repayments and clear your debt fairly quickly.

Secured loans are another option. Here, instead of a guarantor, you’ll back your loan with an asset or possession. Logbook loans are a form of secured loan, where the lender takes ownership of your car if you can’t pay back what you owe.

Though most secured loans are secured against cars or homes, some lenders will accept other collateral from games consoles to expensive jewellery.

Another alternative, if you need more money, is to go for direct lender personal loans. If you have a chance to speak to a lender, or provide more details about your situation, then you stand more chance of approval.

When you apply online or use loan comparison websites, you’ll usually fill in a form with very little room for the personal circumstance. Often, online applications are only reviewed by computers. Finding a reputable direct lender can help you to provide more information.

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Other Forms of Borrowing

If you can’t find loans where you don’t need a guarantor, there may be other options available. Consider applying for a credit card that’s designed to help with bad credit, or see if your bank will offer an overdraft on your current account.

Sometimes, the places you buy from will offer their own form of credit. This can be formal, like a store credit card, or informal like making a casual agreement with a local business owner. There could be many options available, so don’t despair if you can’t find a loan guarantor.

Costs of Loans Where You Don’t Need a Guarantor

A guarantor helps to reduce the risk that the lender has to take on. With a second chance to get their money back, they’ll be far more willing to lend. A guarantor with a good credit rating can reduce the cost of your loan.

Without a guarantor, expect your loan to be more expensive overall. Lenders raise their interest rates to help them manage the risk.

A high APR means that your loan costs can quickly get out of control. If you’re borrowing money, it’s very important to check that you can keep up with repayments. Lenders should show you a payment schedule, with the dates and values of regular payments as well as your total repayment. Always make sure that you’re happy with the cost before you apply for a loan.

Getting Approved for Loans Without a Guarantor

Finding a loan without a guarantor isn’t always as simple as it seems. You’re more likely to receive a negative response because you’re a high-risk borrower.

To increase your chance of being approved for loans where you don’t need a guarantor, you should do what you can to increase your own credit score. Don’t apply for too many loans in quick succession, and do your best to improve your credit rating by paying your existing debts on time. Even monthly bills like your utility bills and phone contract can have an impact on your credit file.

Alternatives to loans where you don’t need a guarantor, like credit builder credit cards, may help you to solve two different problems. You’ll get access to a small amount of credit straight away, and if you pay it back on time you’ll improve your credit score and make it easier to borrow in future.

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How Can Money Savings Advice Help You With Getting a Loan?

Here at Money Savings Advice, we have partnered with some of the UK’s leading loan broker companies. They have already helped thousands of people get the best loan that suits their needs, and they can do the same for you.

Choosing an independent loan broker means they won’t proceed with an application unless they are sure it is in your best interests. They are also regulated by the FCA, which gives you an additional layer of protection.

If you would like to speak to one of these loan brokers who can help you get a loan, then click on the below and answer the very simple questions.