If you don’t meet a lender’s eligibility criteria, you may still be able to get a loan using a guarantor. Here’s what you need to know about guarantor personal loans.
Lenders put in place eligibility criteria to help them determine who can and cannot manage loan repayments. These criteria include minimum age, income, employment and credit history requirements. If you don’t meet one, a few or all of these personal loan requirements – for example, if you have bad credit history – you can consider enlisting the help of a family member or a close friend to guarantee the loan for you.
What does guaranteeing a loan mean for the borrower and the guarantor? This guide will take you through the ins and outs of guarantor personal loans, the benefits available to borrowers and how to avoid some common pitfalls.
What does it mean to guarantee a loan?
When you ask someone to guarantee your loan, you are asking them to take on your debt if you default on your loan. If you agree to go guarantor on someone’s loan, you become legally responsible for the debt if they become unable to manage their repayments.
If you are a guarantor and you apply for further credit of your own, you will need to list the guarantee on your application. You may also have put up an asset to guarantee someone’s loan, such as equity in your home or a car, and you will no longer be able to use that asset as your own collateral for credit.
What personal loans allow a guarantor?
Below are the loans available with guarantor in our database. If you wish to discuss your eligibility it is always a good idea to compare a range of loans and also speak to your bank.
Not every personal loan is a "guarantor" personal loan; using a guarantor is an optional feature that applicants can take advantage of when they are not eligible on their own merits. You’ll generally have the following loans available to you:
- Secured loans. If you’re looking to buy a car or you or your guarantor have an asset to use as collateral, a secured personal loan is an option for you. These loans come with more competitive interest rates because they are less of a risk to the lender. Keep in mind the additional risk the guarantor takes on if it is them offering up the asset as collateral.
- Unsecured loans. More flexibility is on offer with an unsecured personal loan and no asset is required from you or your guarantor. You can generally get a fixed or variable rate with a loan term of one to seven years.
- Overdrafts. An overdraft is attached to a transaction account and lets you draw up to a specified credit limit. It’s a revolving line of credit, meaning there is no repayment term and no guarantee is required.
How much can I borrow with a guarantor loan?
The amount you’re able to borrow depends on a number of different variables:
- What type of loan are you applying for? Generally, personal loans come with set minimum and maximum amounts. If you are eligible for one of these loans when applying with a guarantor you should be able to apply for any amount in this range.
- What do you want to finance? If you are looking to purchase an asset such as a car you may be restricted to borrowing the value of the vehicle. If you’re borrowing to take a holiday or something similar, lenders may not approve you for as high a loan amount as the loan is more of a risk to them.
- What financial situation are you and your guarantor in? Your income, credit history and employment situation will help lenders determine your capacity to manage your repayments and their own risk in taking you on as a borrower. Similarly, your guarantor’s financial circumstances play a part in this risk level if you are unable to repay your loan and they become responsible for your repayments. The higher your determined risk, the lower loan amount you’ll be approved for.
- What lender are you applying with? Lenders have varying eligibility criteria, personal loan products and loan amounts available. Opt for a lender that offers you the loan amount you’re looking for to ensure you have a better chance of being approved for the loan you need.
Going guarantor? Consider the following before you say “yes”
- I am satisfied the person I’m guaranteeing can manage the loan repayments. This is up to you to do, and may involve you seeking independent financial advice.
- I have checked the terms of the loan agreement. This includes checking whether the guarantee is limited or unlimited, and whether you can expect to be notified if the borrower defaults on the loan.
- I understand the lender doesn’t have to proceed with enforcement against the borrower before taking legal action against me as a guarantor. You have no right to insist on this as a guarantor.
- I understand the capacity under which I’m signing the guarantee. For instance, if you are a director, are you signing a personal guarantee? If you are part of a trust, is the guarantee limited to the trust assets?
- I have received legal advice before agreeing to go guarantor. You can seek free legal advice before agreeing to be the guarantor on a personal loan. There are community legal centres and legal aid agencies available in every state and territory; details of these can be found on ASIC’s website.
Questions we’ve been asked about guarantor personal loans
How old do you have to be to get a loan from a bank?
In Australia, you have to be 18 years old to get a loan from a bank.
What is the difference between a guarantor and a co-borrower?
If you’re a co-borrower, you are listed on the loan as a borrower and are jointly liable for the debt. If you are a guarantor, you are not listed on the loan as a borrower, and you only become responsible for the debt if the borrower defaults on the loan.
Can becoming a guarantor affect my credit report?
Yes. You will have to let future credit providers know that you are a guarantor and if you use any assets you own as a guarantee you may not be able to use them again for your own loans. If the borrower defaults on their repayments, the loan will be listed as a default or a non-payment on your credit report.