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. The person who guarantees the loan is responsible for any repaying debts on the loan.
Rental agreements and mortgages can also be guaranteed in the same way.
Help with the financial impact of coronavirus
A number of measures are being rolled out to help people who are struggling financially because of coronavirus. These include payment breaks for loans, credit cards and mortgages, changes to overdraft charges, help for renters and the extension of the moratorium period for debts in Scotland.
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Guarantor loans, a type of consumer credit, 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 (annual percentage rate) or more. Larger loans are often paid back over several years.
Due to the high interest rates 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 dealing with the debt.
Are you a guarantor for a friend or family member's rent, loan or mortgage? Read our guide for guarantors and learn about the risks and responsibilities.