A guarantor is someone in a strong financial position who is willing to support your personal loan application. The guarantor is usually a family member, and they essentially put themselves forward to pay your loan if you can't.
If you apply for a personal loan with a guarantor then this increases your chances of getting the loan approved.
You might be able to borrow more or secure a lower interest rate if you apply with a guarantor.
But if you can't repay the personal loan, your guarantor may be forced to.
The top 3 reasons Australians have been rejected for a personal loan, according to Finder's data, are having an unsteady income (33%), having a bad credit score (31%) and having too much existing debt (26%).
Entering into a guarantor agreement for a loan is never without risk, but most of the risk really lies on the guarantor. The guarantor should seek legal advice and understand exactly what kind of arrangement they are entering into.
For both parties, it's important to get legal advice before signing a loan contract. And it's important to understand that entering into a guarantor agreement can put strain on your relationship if the borrower can't repay the loan.
Being a guarantor on someone else's personal loan won't harm your credit score if the borrower is making repayments. But the lender will request a copy of both your credit reports.
And if the borrower defaults then this could harm your credit score too.
And while a guarantor arrangement won't necessarily hurt your credit score, it could make it harder for you to get a loan approved yourself.
There are no specific guarantor loan products. A guarantor arrangement is something lenders typically offer on their personal loan products and assess on a case by case basis.
Every lender is different but it's possible to get most personal loan types with a guarantor:
With a secured personal loan the borrower typically offers an asset (usually a car) as security. But if a guarantor is willing to offer something as security instead you may be able to get a secured loan with a guarantor. Secured personal loans have lower rates than unsecured loans.
An unsecured personal loan has no asset attached to it. These loans are more flexible and often easier to get but do have higher rates. You could get an unsecured loan with a guarantor. The guarantor would not have to put a car or property up as security but they'd still be liable to repay the loan if you can't.
The amount you're able to borrow with a guarantor depends on your financial situation, your credit score, the type of loan you're applying for, your guarantor's financial situation and the lender's own lending criteria.
In general, having a guarantor on your loan makes it easier to borrow more than you could alone. But the lender still needs to be satisfied that you can afford the repayments.
Use a personal loan calculator to check you can afford the loan's repayments. Be sure to factor in both the interest rate and loan fees.
A guarantor for a loan is usually a parent or family member. Some lenders may accept a friend as a guarantor but check this before applying.
For most lenders a personal loan guarantor needs to:
If you're applying for a secured personal loan the guarantor needs to provide a suitable asset. For most lenders this is usually a car that is under 7 years old and registered in the guarantor's name.
But some lenders may accept other assets as security.
"Whether you're wanting to use a guarantor or you are the guarantor, it's important to really think about whether this is the best option.
If you're the borrower, you should ask yourself:
If you're the guarantor, ask yourself:
Guarantor personal loans should not only be reconsidered because of the potential financial difficulties, but because of potential damage to relationships."
Only some personal loan lenders accept guarantors, and few advertise it. Where it's allowed, it's usually decided case by case. Check with the lender before you apply, as a full application will show on your credit file.
To become a guarantor you will need to:
You should also seek legal advice before signing a guarantor agreement.
Every lender asks for different information, but most of them require very detailed information about your personal and financial circumstances.
This includes:
There are a few ways to get out of a guarantor arrangement.
You may be able to guarantee part of the loan rather than the entire amount. By limiting the amount of the loan you're guaranteeing, you can support the borrower's loan application and then be free once the borrower has paid back an agreed amount.
The lender has to agree to this arrangement, and it might not be possible on smaller loan amounts.
If a bank turned you down for a personal loan, a smaller lender with risk-based pricing might lend to you without a guarantor. These lenders set loan rates based on a borrower's risk profile and creditworthiness.
This means you have a better chance of getting a loan on your own. But you will end up with a higher interest rate.
In a similar way, peer-to-peer loans match borrowers to sources of finance and they also have risk-based pricing. Again, you'll pay a higher rate but your chances of approval are probably higher.
If you have the option to wait before applying for credit, you might be better off improving your credit score and applying for a loan without a guarantor.
You could also increase your chances of getting a loan by borrowing a smaller amount.
If you’re looking to buy a new or used car you could borrow up to $147,000 with a secured personal loan from Wisr.
The Unity Bank Fair Rate personal loan features personalised, variable interest rates based on your credit score. It can be used for any general purpose between $1000 and $90,000.
A fixed rate secured personal loan from Latitude Financial Services with personalised interest rates.
An unsecured personal loan with interest rates tailored to your risk profile.
Find out how you can apply for a Jacaranda Finance personal loan.
The unsecured Westpac Flexi Loan offers flexible loan terms and repayment options, helping you to pay off your debt sooner. As a flexible line of credit, you can also enjoy unlimited withdrawals without penalty to ensure the loan fits your needs.
An Unsecured Personal Loan from Westpac can help you finance a dream holiday or pay off an existing debt. With a fixed interest rate and flexible repayment terms, you can tailor this loan to suit your budget. Find out if you're eligible to apply.
Get a variable rate personal loan with personalised rates and same-day funding.
The NAB unsecured 10k+ personal loan allows you to borrow money for the consolidation of debts, a holiday trip or a new car. Learn more about the features and benefits of this loan and how to apply online.
Hi i need a $20,000 loan to buy a new car, however my credit history is bad, my parents are prepared to go guarantor they own their own house and all their assets, is this going to be possible or am i wasting my time. thanks Michelle
Hi Michelle,
A guarantor can be a great way to bolster your application if you don’t meet the criteria, but each bank and lender will have different criteria as to what applications they’ll consider. You’ll need to get in contact with the lender you’re looking to apply with to confirm your eligibility.
I hope this helps,
Elizabeth
I went guarantor on a loan unfortunately some payments were missed and it went to the debt collectors.My question is did the financial institute where that money was borrowed should have got in contact with me before it went to the debt collector or not.The person who has the loan has been keeping up the payments on time.Reason he defaulted was he lost his job.
Hi Tony,
When you signed onto the loan as a guarantor you would’ve received a copy of the loan agreement which would contain details of what was supposed to happen in this situation. Usually, the lender would come to the guarantor if payments were missed. It would be best to check the loan agreement and contact the lender, and to seek legal advice. There are free legal advice services in every state.
Hope this has helped,
Elizabeth