Low APR guarantor loans

What is a guarantor loan?

A guarantor loan involves you, the borrower, asking a friend or relative (who’s willing and able) to financially back you. This means they agree to take on your loan repayments if for some reason you’re unable to keep up with them.

The idea is that by providing the lender with the reassurance of a friend or relative who has a good credit rating, you may be able access more attractive interest rates than if you applied alone to a specialist bad credit lender. If your guarantor is a homeowner, that could make your case even stronger still, and some lenders can offer lower rates in this case.

How does APR work?

APR stands for Annual Percentage Rate. It’s intended to help consumers compare the annual cost of loans from different companies alongside each other, and to cut through any cheeky pricing structures that lenders might try to use to make their products look more appealing.

Finding a lender advertising the lowest APR isn’t everything, however.

First off, a lender might promote their impressive “representative APR”, but it may offer different rates for different loan amounts/durations. If there is one, you can use a loan calculator to find the representative APR for the specific amount and term that you have in mind.

Secondly, most lenders tailor rates to the applicant. In other words, the riskier they think it would be to lend to you, the higher the rate they’ll offer.

To find out the actual APR that a lender would offer you, you’ll need to provide a few basic details and consent to a “soft search” of your credit file. Your guarantor will likely need to do the same. A soft search doesn’t affect your credit score, but it usually gives lenders enough information to tell you whether or not it’s worth applying, and the APR that you’d be offered. Lenders certainly won’t be demanding credit-perfection from the main applicant, but your guarantor will need good credit.

The representative APR is the APR that the lender realistically expects at least 51% of its borrowers to receive.

So while APR can be a bit of a minefield, with eligibility checkers you’re getting a much truer picture. And if you’re reading this, you already ahead of the curve!

6 tips to find the cheapest guarantor loans

When it comes to comparing guarantor loans and finding the cheapest rate, there are some key considerations.

1. Try to find a guarantor who owns a home and has excellent credit. If your guarantor is a homeowner (they may own their property outright or have a mortgage), you’ll be able to access lower interest rates than with a guarantor who rents or lives with their parents. They should also have excellent credit, and the loan would need to be affordable for them, in the event that they had to take it on. If you show your guarantor that you’ve done your homework and worked out that with their help you can get an affordable loan, they’re more likely to say “yes”.
2. Shop around. Compare loans from a range of lenders to find the best rate you’re eligible for. Be aware, the APR you see advertised isn’t always guaranteed and you may be offered a higher rate.
3. Use eligibility-checking facilities to see your actual rates, and not just the advertised rates. Most lenders now provide eligibility-checking facilities (look for “Fast Check”, “Quick Quote” etc.) so that you can get a better idea of the actual APR you’d be offered.
4. Better still, use a loan matching service that can check your eligibility for multiple guarantor lenders in one go. …Like Finder!
5. Focus on the total repayable. If you can get a lower APR by borrowing over three years, but you could happily pay the loan back in one, chances are the overall cost will be much higher, and it’s a false economy. Aim to keep the loan as short as possible while ensuring that the monthly repayments are affordable.
6. Check if you can repay early to save on interest. Not many lenders charge a fee for repaying your loan ahead of time, but it’s common for lenders to charge a further two months’ interest on any sums you pay early. That means that although you’ll usually be able to make overpayments in order to save money, you may not save quite as much as you were expecting to.

What fees can apply to guarantor loans?

• Arrangement or set-up fee. Many – but not all – lenders waive these fees that can apply when you first set up your loan. Before you commit, it’s worth making sure.
• Early repayment or redemption fee. These fees are thankfully quite rare, but more commonly if you pay off your loan in less time than the original loan period offered, you may continue to pay interest on overpaid sums for up to two months beyond the date on which the overpayment was made.
• Late fees. If you miss a payment, you’re likely to be charged a late fee by the lender. Often this is around £10-£25, but you’ll also pay additional interest, and with the inevitable damage to your credit score, future borrowing is likely to become more expensive too. If you think you’re going to struggle to make a repayment, it’s always smartest to just contact the lender and let them know. After all, it’s in their interests to work with you to find a solution.

Bottom line

APR isn’t everything. When you’re shopping around for a guarantor loan, your aim should be to find out the actual overall cost of borrowing with each lender. That’ll mean using an eligibility checker. As well as the total amount payable, you should make sure that you’re comfortable with the repayment schedule.

Frequently asked questions

• Can a guarantor on a loan withdraw from the position?

  No. The guarantor will remain as guarantor until the loan is paid off in full.

• Are guarantor loans more expensive than regular personal loans?

  Yes. This is because they represent greater risk to the lender and the potential for complications in recouping funds in the event of default. They are also typically capped at lower amounts.

• Who can act as a guarantor?

  Your guarantor must have a good credit rating, be able to afford the monthly repayments and meet other eligibility criteria. Read our guide on who can become a guarantor.

• Would it ever make sense to take a longer loan in order to get a lower APR?

  In a really specific set of circumstances, potentially.

  • If you find a lender that accepts overpayments and only charges interest for the days on which you borrow;
  • if applying for a longer loan with that lender lets you access a lower rate;
  • if and you have the self-discipline to make sure you clear it in the specific, shorter timeframe that you originally had in mind AND
  • if your circumstances don’t change and lead you to repay more slowly than you had originally intended…

  …then, yes, it could make financial sense. That’s a lot of if’s though!

Written by

Chris Lilly

Head of publishing

Chris Lilly is Head of publishing at finder.com. He's a specialist in personal finance, from day-to-day banking to investing to borrowing, and is passionate about helping UK consumers make informed decisions about their money. In his spare time Chris likes forcing his kids to exercise more. See full bio

Chris's expertise

Chris has written 602 Finder guides across topics including:

• Loans & credit cards
• Building credit
• Financial health