How Guarantor Loan Works

Guarantor loans are provided to those who are not qualified for getting a loan due to various reasons but are in need of urgent money. In this method it is on the basis of a guarantor that the loan is taken and the guarantor signs on the loan of the person who is in need of money. Guarantor is responsible to repay the loan amount once the person who took loan fails to repay it. Thus to be a guarantor, one needs to have steady income and good credit record.

Working Method

Terms and conditions of guarantor loans are different from ordinary loans. This loan is meant to help people with no credit or bad credit for qualifying for a loan. First step in a guarantor loan is an application made by someone for a loan. During loan processing the lender will tell the person that he is not qualified to get the loan amount. One of the usual reasons for denying loan to a person is bad credit or because there is no steady income for loan repayment.

Then the only option available with the person is to find someone who can guarantee repayment of the loan in case of default made by him. Only thing lender cares is that he will get the amount given as loan back on time. They are not concerned about the person, either the borrower or a guarantor. The guarantor can be a friend or a relative with good credit and steady income. On finding the guarantor and getting approval from lender the guarantor will sign the repayment documents as well as loan documents along with the borrower. The undertaking by him is that he will repay the loan amount in case borrower makes any default. He is equally liable as the borrower for repaying the loan.


Before signing as a guarantor one must be aware of the responsibility he is undertaking. He must know that he is the one who will be responsible for repayment in case a default takes place from borrower. It is not only one or more installments he is liable for, but the whole loan amount in case of borrowers default.

In this type it is not only the person who is taking the loan is responsible and held responsible by the lender, but also the guarantor. He is responsible at same extent as the borrower for repayment of loan. He is affected the same way as the person who has taken the loan. The greatest risk is that in case of default made by borrower it is not only him who will have a negative mark on credit score but the guarantor as well.