Guarantor Loans – Unsecured Loans For Bad Credit

Guarantor loans are becoming a popular option for people looking for an unsecured loan but have a bad credit rating. Many of the lenders offering this type of loan will make lots of noise about accepting applications from customers with CCJ’s, poor credit history and bad credit rating.

This is because in most cases they won’t be running a credit check on the applicant, it will be the person who is going to be guarantor for the loan that will be checked out thoroughly.

Here’s what GBP Loans says about their guarantor loans:

Anyone above the age of 18 is eligible to apply for a guarantor loan, provided they can supply an appropriate guarantor. The credit score of the applicant is not taken into account, but all responsible lenders will endeavour to make sure that the guarantor loan is affordable to the applicant.

A Guarantor can be almost anyone – a friend, colleague or family member who may wish to assist. The Guarantor must be a homeowner with an excellent credit history. Source

This is pretty much industry standard and you will find similar statements on most of the lenders and brokers offering unsecured guarantor loans. The most important part of that statement is the last bit that says “The Guarantor must be a homeowner with an excellent credit history.”

This is because, for all intents and purposes it is the guarantor who is actually taking out the loan. Here’s a post we found on a consumer forum that demonstrates who the lender really considers to be the borrower.

“I just applied for a loan with FLM Loans. I was looking online for a loan company for people with bad credit scores and the next day I had about 50 different lenders ringing me to take a loan with them. Luck of the draw I went with FLM Loans. I filled in the forms and got my Mum to sign as a guarantor. Then they phoned my Mum and told her they needed a photocopy of her bank card and they would only pay the money into her account!” Original post can be found here.

The above person would have been much better off asking his Mum to take out an unsecured personal loan with her bank and he could then set up a direct debit to pay the monthly payments into her account each month. That way he would avoid the huge 50% APR charged for guarantor loans by FLM and so would his Mum should his circumstances change and he finds himself unable to make the payments, thereby passing the debt straight on to her.

Here’s a post on the same forum as above made by someone who went guarantor for his daughter only for her to later find herself out of work and himself in financial hardship.

“I foolishly agreed to be a guarantor for a family member for FLM Loans. Please do not go near this company! They will harrass you and refuse to discuss any financial hardship with a Counselling Service. They insist they will take you to court when under 25 days late with a payment and threaten to take your home. The employees are rude and unmoveable. Please research this company before taking on a loan especially if you are a guarantor and don’t touch them with a barge pole. They make it very easy and enticing to get a loan but if, God forbid, you find yourselves in situations beyond your control they are relentless.” Original forum post can be found here.

The point is not whether the company above acted correctly or unreasonably, the point is that any lender offering guarantor loans is going to execute their right to chase the guarantor should the payments fall behind and so you should think long and hard before asking someone to be co-signer to your loan.

If you do decide that a loan with guarantor is your only option, ensure it is definitely an unsecured loan. The last thing you want is for someone to lose their house because you got fired or fell ill or had an accident.

You should also get the lender to confirm they notify the credit bureaus once you have settled the debt as using guarantor loans is an excellent way to rebuild your credit rating so that the next loan you need will not require a guarantor.

Also consider drawing up a contract between you that states you will pay back in full any costs incurred by the person who is guarantor should you fail to settle the debt. Some lenders who specialise in guarantor loans will actually provide an indemnity form for you to use and not only can it provide the guarantor with a little reassurance by showing them you are taking your responsibilities seriously, it also gives them a legally binding obligation from you.

This type of unsecured loan can be the answer if you have exhausted other options and you have someone willing to step up to the plate for you. Be warned though, many friendships and relationships have been destroyed by guarantor loans.