How Guarantor Loans Work

A guarantor loan is for anyone who either has a low credit rating because of prior financial mishaps, or simply has not built their credit score up yet. Guarantor loans were created as a way for these people to conquer their credit scores and get the loan they need.

What is a Guarantor Loan?

In order to understand how guarantor loans work you have to know what a guarantor loan is. In essence; a guarantor loan is a type of loan that exists as a pathway to enable individuals with poor credit scores, or no credit at all, to be approved for loans and/or help build their credit score. It will require that a guarantor co-sign on the loan along with the borrower.

How do they work?

Once a borrower has found a guarantor and they have agreed to cosign on a loan with them they can then approach a lender as a pair. Typically a guarantor loan is organized so that the borrower will be responsible for the agreed payments to the lender. However, if the borrower defaults on their payments, then the guarantor will make the payment in their stead. Typically a guarantor loan has only one guarantor who cosigns with the borrower. Check here.

How do you pick a guarantor?

There are a couple of factors to consider when picking a guarantor but the most important factor by far is their credit score. The better the credit score of your guarantor the better loan you will be able to get from a lender. This could be the difference between getting a loan offer from a lender than seems reasonable and getting a loan offer that you absolutely cannot pay for.

It is also important that the guarantor you choose understands that they will be held responsible just as much as the borrower if they are not prepared to make repayments in the event that the borrower cannot.

Lastly make sure you choose someone you can trust. Someone that knows you and your financial situation and will understand if you ever need them to make a payment for you. Typically guarantors are close family members, although they can be anyone from coworkers to closer friends.

Using a Guarantor Loan to Build Credit

Even though guarantor loans involve two people, the guarantor and borrower, if the loan is paid on time it will help boost the borrowers credit score. As long as each payment is made on time and in accordance with the agreed amount with the lender it will help increase your credit rating. Which will in turn help you secure a loan without the help of a guarantor down the line.


Guarantor loans can be the beginning to a great credit score or the first step in fixing a less than stellar credit history. As long as you find a guarantor that understand you and your needs and is willing to help, it can be a great way to help secure a stable financial future. Check out more:

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