Compare Non Homeowner Guarantor Loans

What is a non-homeowner guarantor loan?

With a guarantor loan, a guarantor agrees to repay a loan if the borrower can’t. It is usually for people who might otherwise struggle to get a loan because they have a poor or limited credit history. The guarantor might be a family member, a close friend or a colleague.

A non-homeowner guarantor loan doesn’t require the guarantor to own their home. So the guarantor could be a tenant, which is why it is sometimes called a tenant guarantor loan.

The loan is in the borrower’s name and they are responsible for meeting repayments, but the guarantor is liable to pay the loan back if the borrower can’t. This helps reduce the risk to the lender of lending to someone with poor credit.

Both parties will need to pass the lender’s affordability checks, and the guarantor will need a good credit score and to be financially separate from the borrower. So, if a couple shares a bank account, one partner can’t be a guarantor for the other – they may be able to, however, if their bank accounts are separate.

Even though there are similarities, guarantor loans are different to joint loans. With a joint loan, both parties will be responsible for paying it off, whereas a loan guarantor will only be liable to make repayments if the borrower can’t.

How does a non-homeowner guarantor loan work?

When you apply for a guarantor loan, the lender will run various checks on the person wanting to borrow the money, as well as the person acting as the guarantor.

If your application is approved, the lender will typically transfer the loan into the guarantor’s account, for the guarantor to transfer it to the borrower. This could vary between lenders, as some may transfer the loan directly to the borrower.

The borrower will then need to pay back the guarantor loan, plus interest, each month over the agreed term, just as with any other loan.

The guarantor will step in if the borrower doesn’t manage to make a payment. If the borrower misses a payment or can’t repay the loan, the guarantor will be responsible for paying back the loan.

Who can get a non-homeowner guarantor loan?

Lenders will have different eligibility criteria, but you can usually apply for a non-homeowner guarantor loan in the following circumstances:

You don’t own a home and are renting, or are living with friends or family.

• You are aged over 18 or 21, though age limits can vary.
• You are a UK resident and have a UK bank account.
• You pass the affordability checks and can comfortably afford to make repayments.
• You meet the lender’s employment and income requirements.

Even if you are eligible, it’s a good idea to consider alternative options in case they suit you better or are more affordable.

Who can be a guarantor?

A guarantor is most likely to be a close friend, a colleague or a family member of the borrower. Eligibility can vary, but the lender will usually ask that they are:

• financially stable, with a good credit record, a regular minimum income and a UK bank account.
• aware of the risks that come with putting themselves forward as security for another person’s loan.
• aged 21 or over.
• not financially connected to you, such as sharing a joint bank account.

Some lenders may specify that the guarantor needs to be a homeowner. However, it is possible to be a guarantor if you are a tenant or living with friends or family, for example.

Lenders are unlikely to accept guarantors with a bad credit history, as they may not have the best track record of making payments on time.

Guarantors will need to trust the borrower and be willing to cover the repayments if the borrower can’t. They should be aware of the cost of repayments and the interest rate charged, and what happens if the loan falls into default. They should also understand the potential impact on their credit report and how being a guarantor could affect their own future borrowing.

» MORE: Who can be a guarantor

Does a guarantor need to be a homeowner?

Guarantors don’t necessarily need to be a homeowner. Some lenders will allow non-homeowners to act as a guarantor, as long as they have a good credit history, sufficient income and pass the necessary checks.

However, some lenders may require the guarantor to be a homeowner, particularly if you want to borrow a larger sum.

Even if it’s not mandatory, lenders may look on your application more favourably if the guarantor owns their own property. For example, you may be able to access lower rates of interest if your guarantor is a homeowner.

Whether you’re a homeowner or not, to become a guarantor you will still need to pass a credit check and any other affordability checks conducted by the lender.

» COMPARE: Homeowner guarantor loans

Can I get a non-homeowner guarantor loan with bad credit?

Guarantor loans are generally designed for people who have a poor credit score or limited credit history, who may otherwise struggle to get a loan.

Because the lender has the reassurance that the guarantor will repay the loan if the borrower can’t, they may be more likely to accept applications from people with poorer credit histories.

However, borrowers will still need to pass the lender’s credit and affordability checks, so your application isn’t guaranteed to be approved even if you do have a guarantor.

The lender will also run checks on the guarantor, who typically needs a good credit score to be accepted. This is because the lender needs to know the guarantor can cover repayments if the borrower can’t.

Pros and cons of non-homeowner guarantor loans

Non-homeowner guarantor loans can offer several advantages, but you should be aware of some of the disadvantages too.

Benefits of a non-homeowner guarantor loan

Some of the advantages of a non-homeowner guarantor loan are:

• It offers an option for borrowers with a poor or limited credit history.
• The guarantor and borrower don’t have to own their home.
• If payments are made in full and on time, it can help rebuild the borrower’s credit profile and credit score.
• It can usually be paid off early with no early repayment fee, though interest and service charges may apply, so read the terms of your agreement carefully.

Drawbacks of a non-homeowner guarantor loan

It’s important to be aware of the potential downsides of this type of loan, especially when compared with other types of lending. The disadvantages include the following:

• The interest charged may be higher than with other loans.
• You may be able to get a lower interest rate if your guarantor is a homeowner.
• The guarantor typically has to have a good credit score to be accepted.
• If payments are missed, the guarantor’s credit history could be affected along with the borrower’s.
• The choice of lender may be limited, as not all guarantor loan lenders accept tenant or non-homeowner guarantors.
• Once the loan has been released and the two-week cooling-off period has passed, the guarantor can’t withdraw from the agreement.

How much do non-homeowner guarantor loans cost?

Guarantor loans are usually for people with a poor credit rating or a limited credit history. As the lender sees this type of lending as higher risk, the annual percentage rate (APR) offered can be higher than it is for other loans. This means they can be more expensive than other types of loan.

However, if you have bad credit, getting a loan with a guarantor could help you access a lower rate than if you applied for an unsecured loan without a guarantor.

It’s worth knowing that lenders tend to offer a lower APR if the guarantor owns their home. The maximum loan amount offered may be more, too. The guarantor’s home can be mortgaged or owned outright.

The representative APR varies widely between lenders, so it makes sense to compare rates from different lenders. Bear in mind that the representative rate may not be what you are offered, so you may receive a higher rate, depending on your personal circumstances.

What you pay will also depend on how much you borrow and over how long. The longer the term of your loan, the more you will likely pay in interest over time.

How to get a non-homeowner guarantor loan

Before you apply, you will want to find a guarantor who is willing to support your application. Once you have compared loans from different lenders, check that you and your guarantor meet the lender’s criteria and you are both clear on the terms and your obligations. Then you can formally apply for a loan by taking the following steps:

• Choose the loan amount and term. Most providers and comparison pages offer a calculator, so you can see the monthly repayment amount, total amount repayable and representative APR.
• Fill in the form, including personal details for you and the guarantor, what you want the loan for, your employment status and income.
• Some lenders will allow you to check your eligibility for a loan before applying. The lender will carry out a soft credit search, which won’t be visible to others or affect your credit score.
• If you choose to carry on with your application and formally apply for the loan, the lender will need to carry out a more thorough credit search, called a hard credit check. This will appear on your credit history.
• Lenders will also run affordability checks on guarantors. Some will conduct a hard credit check, but some lenders may only perform a soft check, which won’t appear on your credit history. Once your application is approved, you and your guarantor will both need to sign an agreement and, if applicable, supply proof of ID, including evidence of your address, employment and income.
• Finally, the lender will pay the money. Lenders will often transfer the loan into your guarantor’s account, and they can then transfer it into yours.

It is best to avoid applying for too many loans in a short space of time. Having a lot of hard credit checks could affect your credit score and reduce your chances of getting credit in the future.

Like any loan, only take on a non-homeowner guarantor loan if you know you can afford the repayments. The lender will run affordability checks, but you’ll need to be sure that the monthly repayments are realistic for you.

Your guarantor should also be aware of their responsibilities if you have trouble repaying the loan. Bear in mind that this arrangement might put stress on your relationship, as non-payment can have serious financial consequences.

» MORE: How to get a guarantor loan

How much could I borrow?

Non-homeowner guarantor loan amounts usually range between £1,000 and £10,000, though some offer more.

You may be able to borrow a larger sum if you or your guarantor are homeowners.

The length of time it takes to pay back the loan plus interest, called the term, is usually between a year and five years.

How soon could I get a non-homeowner guarantor loan?

Once you’ve submitted your application, the loan could be released within 24 to 48 hours. This is if you and your guarantor meet the eligibility, affordability and credit rating requirements. You will also both need to fill in the forms correctly and supply the documentation needed.

Take the time to read the agreement and terms, and don’t feel rushed into going ahead with the loan if you need more time to consider your options.

How to choose the best non-homeowner guarantor loan for me?

It makes sense to shop around to find the most affordable option from you, from the right lender. Be clear on what you’re both signing up for and consider, among other factors:

• the representative APR
• the loan amounts available
• the loan term
• the lender’s reputation

» COMPARE: Guarantor loans

Alternatives to guarantor loans

Although having a good credit score will offer you more options and suggest you are a safer borrower to lenders, there are other credit options for people who don’t have a good credit history.

Possible alternatives include the following:

• Credit cards for bad credit: These could be an option if you only need to borrow a relatively small sum over a short period. However, if you don’t pay off your balance each month, you could face a high rate of interest.
• Credit union loans: It may be worth seeing if you are eligible for a loan from a credit union as they could have lower interest rates than a guarantor loan.
• Bad credit loans: If you can’t find a guarantor, you may still be eligible for a personal loan. There are specialist loans available for those with bad credit, although they can come with high interest rates.
• Secured bad credit loans: If you are a homeowner, you may be able to secure a loan against your property. Secured loans could be easier to get with bad credit compared to an unsecured loan, but you risk losing your property if you default on the loan.
• Loans from friends and family: If you have any trusted friends or family members that can afford to lend you money, this may be an option. However, make sure you’re aware of the potential impact this could have on your relationship if there are disagreements about repayments, for example.

If you are struggling with debt, you can ask for free help from debt charities and other sources.

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