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Guarantor loan debts. How to deal with them.

A guarantor loan is when someone else, such as a family member or friend, agrees to repay the loan if you can’t afford the repayments.

Guarantor loans are usually marketed at people who have bad credit or have been turned down by other lenders.

Interest rates for many guarantor loans are high, often around 50% APR or more. Larger loans are often paid back over a few years and this high interest means you could end up paying back more than double the amount you borrowed.

Because the loan payments are guaranteed by someone else, the debt is similar to a joint debt where both people are responsible for paying it back if one person can’t. This can cause problems if you’re unable to afford the loan as the guarantor becomes jointly responsible for the debt.

What happens if I can’t pay a guarantor loan?

If you fall behind with a guarantor loan or can’t afford to pay it, the lender will ask you to catch up with payments. If you don’t do this the account will default and the lender can then ask the guarantor to make the repayments.

The debt will be dealt with using the normal debt collection process which could involve the debt being passed to a collection agency or court action being taken.

This places a significant risk on the guarantor, as they’ve agreed to repay the debt if you can’t. Any impact that the loan has on your credit file will affect both of you, in the same way as a joint debt.

If a family member or friend is your guarantor, the impact of them having to pay the debt could cause relationship problems, stress and financial difficulties.

Need help with a guarantor loan debt?

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Is a guarantor loan right for me?

Although this type of bad credit loan might seem a good option for people who are looking to improve their credit file, it’s important that you and the guarantor are fully aware of the risks involved.

You should be aware of the cost of the debt and interest rates, as these can be quite high and lead to further problems. If you’re looking at a guarantor loan to consolidate existing debts there may be other, more affordable options available to you.

Need help with a guarantor loan?

If you’re struggling to repay a guarantor loan, or you’re looking for help dealing with your debts, we can help. Use our free Debt Remedy tool to look at all of your available options and give you expert advice for your situation.