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What is a non-homeowner guarantor loan?

A guarantor loan is where a guarantor agrees to repay a loan if the borrower can’t. It is usually for people who might otherwise struggle to get a loan because they have a poor or limited credit history. The guarantor might be a family member, a close friend or a colleague.

A non-homeowner guarantor loan doesn’t require the guarantor to own their home. So the guarantor could be a tenant, which is why it is sometimes called a tenant guarantor loan.

The loan is in the borrower’s name and they are responsible for meeting repayments, but the guarantor is liable to pay the loan back if the borrower can’t. This helps reduce the risk to the lender of lending to someone with poor credit.

Both parties will need to pass the lender’s affordability checks, and the guarantor will need a good credit score and to be financially separate from the borrower. So if a couple shares a bank account, one partner can’t usually be a guarantor for the other.

How does a non-homeowner guarantor loan work?

Once you have applied, the lender will carry out credit checks. As the guarantor will be obliged to pay the debt if you default on the agreement, the lender needs to look at how your guarantor has paid back past credit, and if they have any outstanding debts. They will also want to know the guarantor’s credit score. A credit score shows how reliable someone is when borrowing money. The higher the score, the more favourably lenders will look on the borrower.

Your debts and credit history will also be taken into account, to make sure the loan and the monthly payments are affordable for you.

Once the loan is agreed, the lender will pay the money into your guarantor’s bank account, before they transfer it into your account. You then pay the loan back, plus interest, each month. If you can’t make repayments, your guarantor is responsible for covering them, so the loan doesn’t fall into arrears.

A non-homeowner guarantee loan is a legally binding agreement affecting both parties. Only borrow what you can comfortably afford to pay back, and bear in mind your guarantor’s credit rating may be affected if the repayments aren’t met.

Who can get a non-homeowner guarantor loan?

Once you have found a guarantor, you can usually apply for a non-homeowner guarantor loan if:

• You don’t own a home and are renting, or are living with friends or family.
• You are aged over 18 or 21 and under 75, though age limits can vary.
• You are a UK resident and have a UK bank account.
• You pass the affordability checks and can comfortably afford to make repayments.
• You are not in bankruptcy and don’t have an individual voluntary arrangement (IVA).
• You meet the lender’s employment and income requirements.

Even if you are eligible, it’s a good idea to also consider alternative options, in case they suit you better or are more affordable. These might include other forms of lending, such as bad credit loans or loans from credit unions.

Who can be a guarantor?

A guarantor is most likely to be a close friend, a colleague or a family member of the borrower. Eligibility can vary, but the lender will usually ask that they are:

• Financially stable, with a good credit record, a regular minimum income and a UK bank account.
• Aware of the risks that come with putting themselves forward as security for another person’s loan.
• Aged 21 or over.
• Not financially connected to you, such as sharing a joint bank account.

Guarantors will need to trust the borrower and be willing to cover the repayments if the borrower can’t. They should be aware of the cost of repayments and the interest rate charged, and what happens if the loan falls into default. They should also understand the potential impact on their credit report and how being a guarantor could affect their own future borrowing.

» MORE: What to consider before agreeing to be a guarantor

Are non-homeowner guarantor loans available for people with bad credit?

Guarantor loans are generally designed for people who have a poor credit score or limited credit history, who may otherwise struggle to get a loan.

The lender will run credit checks on the guarantor, who must have a good credit score to be accepted. This is because the lender needs to know the guarantor can cover repayments if the borrower can’t. It will also run credit and affordability checks on the borrower, to make sure the repayments are achievable.

How much can I borrow with a non-homeowner guarantor loan, and for how long?

Non-homeowner guarantor loan amounts usually range between £1,000 and £10,000, though some offer up to £15,000.

The length of time it takes to pay back the loan plus interest, called the term, is usually between a year and five years.

The benefits of a non-homeowner guarantor loan

Some of the advantages of a non-homeowner guarantor loan are:

• It offers an option for borrowers with a poor or limited credit history.
• The guarantor and borrower don’t have to own their home.
• If payments are made in full and on time, it can help rebuild the borrower’s credit profile and credit score.
• It can usually be paid off early with no early repayment fee, though interest and service charges may apply, so read the terms of your agreement carefully.
• Most charge a fixed rate of interest, so monthly repayments are predictable.

The drawbacks of a non-homeowner guarantor loan

It’s important to be aware of the potential downsides of this type of loan, especially when compared with other types of lending. The disadvantages include:

• The interest charged may be higher than other loans, and the total interest you pay over the term may be significantly more than the amount you originally borrowed.
• The guarantor has to have a good credit score to be accepted.
• If payments are missed, the guarantor’s credit history will be affected along with the borrower’s.
• If the loan falls into arrears, the lender will start a debt collection process which could end in the guarantor being taken to court.
• The choice of lender may be limited, as not all guarantor loan lenders accept tenant or non-homeowner guarantors.
• Once the loan has been released and the two-week cooling-off period has passed, the guarantor can’t withdraw from the agreement.

Like any loan, only take on a non-homeowner guarantor loan if you know you can afford the repayments. The lender will run affordability checks, but you’ll need to be sure that the monthly repayments are realistic for you.

Your guarantor should also be aware of their responsibilities, if you have trouble repaying the loan. Bear in mind that this arrangement might put stress on your relationship, as non-payment can have serious financial consequences.

Can you get a low APR with a guarantor loan?

Guarantor loans are usually for people with a poor credit rating or a limited credit history. As the lender sees this type of lending as higher risk, the annual percentage rate (APR) offered is often much higher than it is for other loans. This means they can be more expensive than other types of loan.

It’s worth knowing that lenders tend to offer a lower APR if the guarantor owns their home. The maximum loan amount offered may be more, too. It could be mortgaged or owned outright.

The representative APR varies widely between lenders, so it makes sense to compare rates from different lenders. Bear in mind that the representative rate may not be what you are offered, depending on your personal circumstances. What you pay will also depend on how much you borrow and over how long. The longer the term of your loan, the more you will pay in interest over time.

How to get a non-homeowner guarantor loan

Before you apply, you will want to find a guarantor who is willing to support your application. Once you have compared loans from different lenders, check that you and your guarantor meet the lender’s criteria and you are both clear on the terms and your obligations. Then you can:

• Choose the loan amount and term. Most providers and comparison pages offer a calculator, so you can see the monthly repayment amount, total amount repayable and representative APR.
• Fill in the form, including personal details for you and the guarantor, what you want the loan for, your employment status and income.
• To assess your application, the lender will carry out a soft credit search and may discuss your finances with you and the guarantor. This search won’t be visible to others or affect your credit score.
• You and your guarantor will both need to sign an agreement and supply proof of ID, including evidence of your address, employment and income.
• Once you have completed the application, the lender will carry out a thorough credit search, called a hard credit check.
• If the application is accepted, the money will usually be paid into your guarantor’s account, and they can then transfer it into yours.

It is best to avoid applying for too many loans in a short space of time. Having a lot of hard credit checks will affect your credit score and reduce your chances of getting credit.

How soon could I get a non-homeowner guarantor loan?

Once you’ve submitted your application, the loan could be released within 24 to 48 hours. This is if you and your guarantor meet the eligibility, affordability and credit rating requirements. You will also both need to fill in the forms correctly and supply the documentation needed.

Take the time to read the agreement and terms, and don’t feel rushed into going ahead with the loan if you need more time to consider your options.

How to choose the best non-homeowner guarantor loan for me?

It makes sense to shop around to find the most affordable option from you, from the right lender. Be clear on what you’re both signing up for and consider, among other factors:

• the representative APR
• the loan amounts available
• the loan term
• the lender’s reputation

What are the alternatives to guarantor loans?

Although having a good credit score will offer you more options and suggest you are a safer bet to lenders, there are other credit options for borrowers who don’t have a good credit history.

Alternatives might be:

• Credit cards for bad credit
• Credit union loans
• Unsecured bad credit loans
• Secured bad credit loans
• Consolidation loans
• Loans from friends and family

Bad credit loans are usually more expensive than those offered to borrowers with good credit scores. So only borrow what you need and be realistic about what you can afford to repay.

Think carefully before applying for a number of loans, as this can affect your credit rating because the lender will carry out a hard credit check. If you are getting quotes, such as through a comparison site, it won’t affect your credit history as it’s usually a soft search.

If you are struggling with debt, help is available from debt charities and other sources.

» MORE: Where to start when choosing a personal loan

Non-Homeowner Guarantor Loans FAQ