Guarantor loans were originally built for people with bad credit histories who could not access mainstream borrowing. The idea was straightforward: a second person, usually someone who knows you well, agrees to cover repayments if you cannot. This article explains how that model works, what lenders look for now, and what the market looks like following the collapse of Amigo Loans.
This article provides general information only. It is not financial advice and does not account for your personal circumstances. If you are unsure which borrowing options suit your situation, a fee-free debt adviser or FCA-authorised financial adviser can help.
What is the direct answer?
Yes, guarantor loans are aimed specifically at people with bad credit. Bad credit does not automatically rule you out. However, the guarantor loan market in the UK has contracted sharply since Amigo Loans entered administration in 2023, so the number of lenders currently offering this product is small. Approval is never certain and depends on both your own circumstances and those of your proposed guarantor.
What does "bad credit" mean in this context?
Bad credit is not a single, fixed thing. Lenders assess it differently, but it generally refers to a credit history that includes one or more of the following:
- Missed or late payments on credit products
- Defaults (where a lender has formally recorded a failure to repay)
- County Court Judgements (CCJs)
- A previous individual voluntary arrangement (IVA) or bankruptcy
- A very thin credit file with little borrowing history
- High credit utilisation relative to available limits
If you want to understand what is on your credit file, you can check it for free with one of the three main UK credit reference agencies: Experian, Equifax, or TransUnion. Checking your own file uses a soft search and does not affect your credit score.
Lenders will look at the type, severity, and age of any adverse entries. A single missed payment from several years ago is treated differently from a recent default or an unsatisfied CCJ.
What do guarantor lenders actually look for?
Even with a bad-credit applicant, a guarantor lender is not simply looking past the credit history. They are assessing the combined picture.
The borrower's situation
Lenders will look at your income, your current outgoings, and whether the loan is affordable for you. The FCA requires lenders to carry out affordability checks. This means they need to be satisfied that you can meet the repayments from your own income, even before the guarantor comes into the picture. A guarantor does not replace an affordability assessment for the primary borrower.
The guarantor's situation
The guarantor is central to how this product works. Lenders typically want a guarantor who:
- Has a good or strong credit history with no recent defaults or CCJs
- Is between 21 and 75 years of age (age criteria vary by lender)
- Has a stable income sufficient to cover the repayments if required
- Is ideally a UK homeowner, though some lenders will consider non-homeowners
The guarantor will also be subject to a credit check and affordability assessment. A full application usually involves a hard search on the guarantor's file, which leaves a record.
The loan itself
Lenders consider the amount requested, the loan term, and the representative APR. Higher-cost loans with longer terms carry more risk for everyone involved.
What happened to the guarantor loan market after Amigo?
Amigo Loans was the dominant guarantor lender in the UK for many years. In 2023, Amigo entered administration after a lengthy process of dealing with affordability complaints and compensation claims. The FCA had raised serious concerns about whether Amigo had been lending responsibly to borrowers who could not realistically afford repayments.
The collapse of Amigo reduced the guarantor loan market significantly. A small number of lenders still offer guarantor or co-borrower products, but the landscape is much narrower than it was. If you are searching for a guarantor lender, it is worth checking that any lender you find is authorised and regulated by the FCA. You can verify this on the FCA Register at fca.org.uk.
Be cautious of unregulated or informal lending arrangements presented as guarantor loans. These carry serious risks and offer no consumer protections.
Risks and checks before applying
Be careful if your guarantor does not fully understand what they are signing up for. This is a binding legal agreement. If you miss payments, the lender will contact your guarantor and expect them to pay. That can cause lasting damage to the relationship and to your guarantor's credit file and finances.
Risks to you, the borrower
- Guarantor loans typically carry high interest rates. The annual percentage rate (APR) can be substantially higher than mainstream personal loans.
- If you miss payments, your credit record is damaged further, making future borrowing harder.
- A failed application involving a hard search will appear on your file even if no loan is taken.
- Taking on debt you cannot comfortably afford can worsen financial stress rather than ease it.
Risks to your guarantor
- If you cannot pay, the full repayment obligation falls to your guarantor.
- Missed payments by the guarantor will damage their credit file.
- If the guarantor is a homeowner, they are not putting their home at risk in the same way as a secured loan, but significant debt obligations still affect their financial position.
- Legal action can be taken against both parties if the debt remains unpaid.
Before applying, it is worth checking
- Whether the loan is genuinely affordable based on your current income and outgoings. A budget planner can help with this.
- Whether your guarantor has read all the terms and understands what happens if you cannot pay.
- Whether any lender you approach is on the FCA Register.
- Whether a soft-search eligibility check is available, so you can gauge your chances before a hard search is recorded.
- Whether there is a less costly alternative (see below).
What alternatives are worth considering?
If you have bad credit and need to borrow, a guarantor loan is not the only option. Some alternatives carry lower costs or fewer risks.
Credit unions
Credit unions are member-owned financial organisations. Many offer small, affordable loans to members regardless of credit history, and their interest rates are capped by law. You typically need to be a member first, which usually requires saving with the credit union for a period. MoneyHelper has a tool to help you find a local credit union.
Budgeting loans and budgeting advances
If you are in receipt of certain qualifying benefits, you may be eligible for an interest-free Budgeting Loan (for legacy benefits) or Budgeting Advance (for Universal Credit) from the government. These are repaid through deductions from future benefit payments and carry no interest.
Improving credit before applying
If the borrowing need is not urgent, it may be worth taking time to address the issues on your credit file first. Paying down existing debts, registering on the electoral roll, and making consistent on-time payments can all help over time. Lenders assess the trend of your credit behaviour, not just a snapshot.
Free debt advice
If you are considering a guarantor loan because you are struggling with existing debts, free debt advice is usually a more appropriate starting point. Taking on new credit when existing debts are already difficult to manage can make the situation worse, not better.
Where to get free debt help
If money is already tight, talking to a free debt adviser before taking on any new borrowing is worth considering. The following organisations offer free, confidential support:
- StepChange Debt Charity: 0800 138 1111 (stepchange.org)
- National Debtline: 0808 808 4000 (nationaldebtline.org)
- MoneyHelper: 0800 138 7777 (moneyhelper.org.uk)
These services are independent and will not try to sell you a product. They can help you understand all of your options, including ones that do not involve taking on more credit.
Frequently asked questions
Can I get a guarantor loan if I have a CCJ?
Some lenders will consider applicants with a CCJ, but most will also assess the severity, how recent it is, and whether it has been satisfied. A CCJ does not automatically disqualify you, but it reduces the number of lenders willing to proceed. Your guarantor's creditworthiness carries significant weight in that decision.
Does my guarantor need to be a homeowner?
Not always, but many lenders prefer a guarantor who owns property. Homeownership gives the lender greater confidence in the guarantor's financial stability. Some lenders will accept a non-homeowner guarantor with a strong credit history, though the terms may differ. Checking the lender's eligibility criteria before applying is a useful first step.
Will applying for a guarantor loan affect my credit file?
A full application usually involves a hard credit search, which will appear on your credit file. Some lenders offer a soft search eligibility check first, which does not affect your score. It is worth checking whether a soft check is available before submitting a full application.
What happens if I cannot repay and my guarantor also cannot pay?
The lender may take legal action to recover the debt from both you and your guarantor. This can lead to county court judgements, damage to both credit files, and significant financial pressure on your guarantor. Both parties need to understand this risk before signing.
Are there alternatives to a guarantor loan for bad credit?
Yes. Credit unions may offer small loans on more affordable terms. Budgeting loans are available from the government for those on certain benefits. A debt management plan or free debt advice may also be a more appropriate first step if you are already stretched financially.
How much can I borrow with a guarantor loan?
Loan amounts and lender availability have reduced since the collapse of Amigo Loans. Where guarantor lending still exists, amounts typically range from a few hundred to several thousand pounds. The exact amount depends on both your circumstances and your guarantor's financial position.
Related guides
Sources
- FCA (fca.org.uk), regulatory information on consumer credit and the FCA Register
- MoneyHelper (moneyhelper.org.uk), guidance on credit unions, debt help, and borrowing options
- Experian (experian.co.uk), information on credit files, credit scores, and how adverse entries are recorded
- Can I get a guarantor loan if I have a CCJ?
Some lenders will consider applicants with a CCJ, but most will also assess the severity, how recent it is, and whether it has been satisfied. A CCJ does not automatically disqualify you, but it reduces the number of lenders willing to proceed. Your guarantor's creditworthiness carries significant weight in that decision.
- Does my guarantor need to be a homeowner?
Not always, but many lenders prefer a guarantor who owns property. Homeownership gives the lender greater confidence in the guarantor's financial stability. Some lenders will accept a non-homeowner guarantor with a strong credit history, though the terms may differ. Check the lender's eligibility criteria before applying.
- Will applying for a guarantor loan affect my credit file?
A full application usually involves a hard credit search, which will appear on your credit file. Some lenders offer a soft search eligibility check first, which does not affect your score. It is worth checking whether a soft check is available before submitting a full application.
- What happens if I cannot repay and my guarantor also cannot pay?
The lender may take legal action to recover the debt from both you and your guarantor. This can lead to county court judgements, damage to both credit files, and significant financial pressure on your guarantor. Both parties need to understand this risk before signing.
- Are there alternatives to a guarantor loan for bad credit?
Yes. Credit unions may offer small loans on more affordable terms. Budgeting loans are available from the government for those on certain benefits. A debt management plan or free debt advice may also be a more appropriate first step if you are already stretched financially.
- How much can I borrow with a guarantor loan?
Loan amounts and lender availability have reduced since the collapse of Amigo Loans. Where guarantor lending still exists, amounts typically range from a few hundred to several thousand pounds. The exact amount depends on both your circumstances and your guarantor's financial position.