If you have a poor credit rating, banks could be reluctant to lend you money through a traditional personal loan. A guarantor loan is a personal loan that is guaranteed by a friend or relative – known as a guarantor. That means they promise to honour any debt if you, the borrower, default on your payments.
If the borrower can’t pay the loan, the guarantor takes over the repayments until the loan is paid off.
What is a non-homeowner or tenant guarantor loan?
A non-homeowner or tenant guarantor loan does not require the guarantor to be a homeowner (a person who owns their home outright or has a mortgage). Lenders look at your guarantor’s credit history, income and outgoings rather than any equity they hold in property. As long as they have a good credit history and can afford the loan, it doesn’t matter if they’re renting.
Non-homeowner or tenant guarantor loan rates won’t be as good as homeowner guarantor loans. The actual interest rate depends on a range of factors, such as the loan amount, the duration and the financial circumstances of both the borrower and the guarantor.
Late repayments can cause you serious money problems. See our debt help guides.
Why take out a non-homeowner guarantor loan?
If you’re planning a big purchase or want to pay off an existing debt, you may have considered obtaining a personal loan. However, if your poor credit history prevents you from getting a loan with a traditional lender, a non-homeowner guarantor loan could be an option.
The “non-homeowner or tenant” part of the loan refers to the guarantor’s property status – not the borrower’s. If your guarantor is a tenant, renting or even living with their parents, but has a good credit rating, they could still be eligible to be your guarantor and could help you obtain a loan.
Asking a friend, family member or work colleague to be a guarantor is a serious commitment for both parties and could impact your credit record or financial situation as well as your guarantor’s if you default on your repayments.
What should I look for in a non-homeowner guarantor loan?
When it comes to comparing non-homeowner or tenant guarantor loans, there are some key features to look for. Ask yourself these questions before deciding on a loan.
Do we qualify for this loan? Don’t waste time applying for a loan if you and your guarantor don’t meet the minimum eligibility requirements.
Can I borrow the amount I need? Will you be able to take out the amount you need, and will you be able to pay it back in a reasonable amount of time? If not, you might want to look elsewhere.
Does it have a competitive interest rate? Most guarantor loans charge a fixed interest rate, meaning your monthly repayments will stay the same throughout the loan. Remember that the advertised rate is not necessarily what the lender will offer you. Lenders look at factors such as the credit score and income for both you and your guarantor, as well as your (the borrower’s) expenditure when deciding what rate to offer you.
Can I make overpayments or repay the loan early? Most lenders will not penalise you for paying back some or all of the loan early. However, that does not necessarily mean that doing so will save you money in interest. In many cases, you will need to pay 1 or even 2 months of interest to settle your loan early.
How long will I have to pay it back? Aim for a loan term that gives you monthly repayments you can afford without being too long. Otherwise, you could wind up paying a lot in interest in the long run.
Are there any fees? Most lenders don’t charge fees on guarantor loans, but it’s always good to check.
Applying for a non-homeowner guarantor loan
To secure a non-homeowner guarantor loan, there are a number of criteria you and your guarantor need to meet. These vary from lender to lender but typically include some or all of the following.
Criteria for the borrower
Aged between 18 and 75.
Either working full-time, part-time or for an agency; self-employed or a pensioner.
Comfortable to act as guarantor and understands the commitment they are undertaking.
Thinking about becoming a guarantor?
If a friend, relative or work colleague has asked you to be a guarantor, there are some things you must consider before applying.
Do you trust them to make all the payments on time each month?
Are you sure the borrower can afford it?
Are you comfortable taking over the payments if something goes wrong?
The application process
Do your research and compare loans before applying, making sure both you and your guarantor meet the eligibility criteria. The application process usually goes as follows:
Borrower fills in details and signs agreement.
Guarantor fills in details.
Lender checks both the guarantor’s and the applicant’s credit score and ability to pay off the loan.
Guarantor signs agreement.
Lender may contact the borrower, guarantor or both over the phone to discuss affordability.
Lender officially offers the loan once the lender is satisfied with both parties.
Borrower accepts the loan offer.
Lender issues funds to the guarantor, who can then transfer the amount to the borrower.
Many lenders aim to complete and approve an application within 48 hours, though it can take longer due to the number of steps involved.
Available with guarantors who don’t own property (e.g., renting, council tenants or those living with parents).
Cons
Need to find a guarantor with good credit.
Rates are typically higher than homeowner guarantor loans.
Bottom line
If you’re someone with a poor credit score or have previously defaulted on a loan, a non-homeowner guarantor loan could be a suitable option to help you secure a loan. If this is something you’re considering, both you and your guarantor must meet a certain eligibility criteria. In this case, the guarantor is not required to be a homeowner but must have an excellent credit score and a good borrowing history. Something to keep in mind, though, is the guarantor must be willing to take this loan on if you miss repayments.
Frequently asked questions
A non-homeowner or tenant guarantor loan is not a secured loan, so it’s not tied to the home as collateral. However, if the borrower defaults, the guarantor will need to continue paying off the loan.
If the borrower were to enter into an individual voluntary arrangement (IVA), go bankrupt, simply stop paying or pass away, then the guarantor would become solely responsible for each monthly repayment until the loan was cleared.
In most cases, once all parties have signed the loan agreement and the money has been sent out, it’s difficult to stop being the guarantor. Only once the loan has been repaid in full by the borrower can you stop being a guarantor. In the sad circumstance where a guarantor has passed away, the lender should be contacted in the first instance.
Yes, the lender runs a credit check on both of you before deciding on your application.
This is to avoid fraud and to guarantee the guarantor named in the paperwork really is the guarantor.
Yes, lenders tend to focus on your affordability and credit history when considering your loan application.
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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
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A guarantor loan allows people with no or a very low credit score to borrow if they have a guarantor who agrees to cover any unpaid monthly repayments. We have compiled statistics on how people are handling their guarantor loans.
Looking for a homeowner guarantor loan? Learn all you need to know about how they work, lending criteria and how to apply online.
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