A guarantor can help get you a loan if you don't meet a lender's eligibility criteria. Find out how they work and compare your options.
If you're struggling to get approved for a personal loan, using a friend or relative as a guarantor can improve your chances. Learn how guarantor loans work for both the borrower and the guarantor, see your other options and compare loans now.
Compare guarantor loans
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 be a guarantor on someone’s loan, you become legally responsible for the debt if they become unable to manage their repayments. As the guarantor acts as an additional safeguard, lenders may be more likely to approve your loan application.
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 to 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 if you apply for another loan.
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 if you or your guarantor has an asset to use as collateral, you can apply for a secured personal loan. You will generally get a more competitive interest rate as a secured loan represents less risk to the lender. Keep in mind that the guarantor is taking on additional risk if it's their asset that is used as security.
- Unsecured loans. You can get more flexibility with an unsecured personal loan, and neither you nor your guarantor needs to offer an asset as security.
- 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 other personal expense, lenders may not approve you for as high a loan amount since 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.
What are my other options?
If you don't have access to a guarantor and have a bad credit history, you may still be eligible for a personal loan. Nowadays, many lenders offer risk-based lending, which means you may still be approved for a loan even if you have bad credit or represent more risk to the lender.
You are likely to receive a higher rate, and may be limited in terms of how much you can borrow, but will not need to find a guarantor.
Asked to be a 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 be a 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. Also, 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.