A guarantor loan requires a second person to back your borrowing; a standard personal loan does not. This comparison explains how each works, what they cost, and who each type typically suits.
This article gives general information about two types of borrowing. It is not personal financial advice and does not take your individual circumstances into account. If you are unsure which option is right for you, a free debt or money guidance service can help.
What is the direct answer?
A personal loan is an agreement between you and a lender, based on your own credit record and income. A guarantor loan adds a third person: someone who promises to cover your repayments if you cannot. Guarantor loans are usually aimed at borrowers with a thin or poor credit history. Personal loans tend to offer lower rates but require a stronger credit profile to qualify. Which suits you depends mainly on where your credit record stands right now.
How does each loan work?
Personal loan
You apply on your own. The lender checks your credit file, income and existing debts, then decides whether to lend and at what rate. If approved, the money is paid into your account and you repay in fixed monthly instalments over a set term, usually one to seven years.
The loan is unsecured, meaning no asset is held as security. If you stop paying, the lender can pursue you through the courts, and the missed payments will damage your credit file.
Guarantor loan
The structure is similar, but with one addition: you nominate a guarantor, often a family member or close friend. The guarantor must usually be a UK homeowner with a good credit record, though some lenders accept non-homeowners.
If you miss payments, the lender will ask your guarantor to pay instead. Your guarantor is legally obliged to do so under the agreement they sign. The lender bears less risk, which is why it is prepared to lend to people with a weaker credit history.
How do the two types compare?
The table below shows the key differences at a glance. Rates shown are illustrative of the market range and will vary by lender and by your circumstances.
| Feature | Personal loan | Guarantor loan |
|---|---|---|
| Who applies | You alone | You, plus a guarantor |
| Typical APR range | ~6% to ~30% | ~30% to ~70%+ |
| Credit history needed | Fair to excellent | Poor to fair (guarantor's record matters more) |
| Guarantor required | No | Yes |
| Loan amounts | £1,000 to £25,000+ | £1,000 to £10,000 (typically) |
| Typical term | 1 to 7 years | 1 to 5 years |
| Secured on property | No | No (standard guarantor loans are unsecured) |
| Risk if you miss payments | Damages your credit file | Damages your credit file and may affect your guarantor's |
| FCA regulated | Yes | Yes |
The APR figures above are indicative. Representative APR figures published by individual lenders will vary. The total amount repayable is the most useful number to compare across loan offers.
What are the real costs?
Interest and APR
Personal loans aimed at borrowers with good credit often advertise APRs in single or low double figures. Guarantor loans, because they serve higher-risk borrowers, typically carry much higher APRs.
The important bit is: APR only tells you the yearly rate. It does not show you the total you will repay. For example, a £3,000 loan at 49.9% APR over three years will cost considerably more in total than the same £3,000 at 12% APR over the same term. Checking the total amount repayable on any loan quote shows this clearly.
Fees and charges
Both types of loan can carry fees for late payment or early repayment. A useful step before signing is to read the pre-contract credit information document every FCA-regulated lender must provide. It lists all fees in a standard format.
Who does each type typically suit?
Personal loan may suit
- Borrowers with a fair to good credit history.
- People who want access to a wider range of loan amounts.
- Borrowers who want to keep the arrangement private, without involving family or friends.
- Those who want the widest choice of lenders and the most competitive rates.
Guarantor loan may suit
- Borrowers who have been refused a standard personal loan.
- People with a limited credit history, for example those who are new to credit in the UK.
- Those who have a willing guarantor with a solid credit record and who understand the commitment fully.
- Borrowers working to rebuild their credit record over time (though a guarantor loan is not a guarantee of credit improvement).
These are general patterns, not rules. A lender's decision depends on its own criteria, which are not always published in full.
What to check before applying for either
Checking a few things before you apply can save time and protect your credit file from unnecessary hard searches.
Check your credit file first. All three main UK credit reference agencies (Experian, Equifax and TransUnion) allow you to see your report. Knowing where you stand helps you understand which type of loan you are more likely to be considered for.
Use soft-search eligibility tools. Many lenders and comparison sites offer an eligibility check that uses a soft search. This gives you a rough idea of your chances without leaving a mark on your credit file. A hard search, which happens when you formally apply, is visible to future lenders.
Compare total amount repayable, not just the monthly payment. A lower monthly payment over a longer term can mean paying significantly more overall.
Consider whether a guarantor loan is fair on your guarantor. Your guarantor takes on a real legal and financial obligation. It is worth having an open conversation about the risks before they sign anything.
Look at alternatives. Depending on your situation, a credit union loan or an authorised overdraft may be worth comparing. MoneyHelper's free guidance service can help you think through options.
Sources
Information in this article draws on regulatory guidance from the Financial Conduct Authority (FCA), which oversees consumer credit lenders in the UK, and on money guidance published by MoneyHelper, the UK government-backed free guidance service.
- Financial Conduct Authority (FCA): fca.org.uk
- MoneyHelper: moneyhelper.org.uk
Frequently asked questions
What is the main difference between a guarantor loan and a personal loan?
A personal loan is agreed between you and a lender alone. A guarantor loan brings in a third person, usually a friend or family member, who agrees to cover repayments if you cannot. Lenders use the guarantor to reduce their risk, which is why guarantor loans are often available to people who would not qualify for a standard personal loan.
Are guarantor loans more expensive than personal loans?
Generally, yes. Because guarantor loans are aimed at borrowers with thin or damaged credit histories, lenders charge higher interest rates to reflect that risk. Representative APRs on guarantor loans are often well above those on standard personal loans. Comparing the total amount repayable, not just the monthly figure, gives the clearest picture of cost.
Can my guarantor be affected if I miss a payment?
Yes. If you miss payments and your guarantor is called upon, the missed payments may be recorded on both your credit file and theirs. It can also strain the personal relationship. This is worth discussing openly with anyone you ask to act as guarantor before you apply.
What credit score do I need for a personal loan?
There is no single threshold. Each lender applies its own criteria. As a general guide, a stronger credit history tends to open up lower-rate personal loans. Checking your credit file before applying, and using soft-search eligibility tools, can help you see which products you are likely to be considered for without affecting your score.
Is a guarantor loan secured on property?
No. A standard guarantor loan is unsecured, meaning neither your home nor your guarantor's home is used as collateral. The guarantor's obligation is a personal one: to make repayments if you do not. This is different from a secured loan, where an asset is formally charged as security.
Can I switch from a guarantor loan to a personal loan later?
It is possible. If your credit history improves during the term of a guarantor loan, you may find you qualify for a standard personal loan at a lower rate. Paying off the guarantor loan early may carry an early repayment charge, so it is worth reading the terms before acting.
Related reading
For a fuller picture of how guarantor loans work, including how to find a suitable guarantor and what happens if things go wrong, the main guide covers this in depth: Guarantor loans guide.
For a broader look at personal loans, how to compare them and what to watch out for, the personal loans guide is a good starting point: Personal loans guide.
- What is the main difference between a guarantor loan and a personal loan?
A personal loan is agreed between you and a lender alone. A guarantor loan brings in a third person, usually a friend or family member, who agrees to cover repayments if you cannot. Lenders use the guarantor to reduce their risk, which is why guarantor loans are often available to people who would not qualify for a standard personal loan.
- Are guarantor loans more expensive than personal loans?
Generally, yes. Because guarantor loans are aimed at borrowers with thin or damaged credit histories, lenders charge higher interest rates to reflect that risk. Representative APRs on guarantor loans are often well above those on standard personal loans. Comparing the total amount repayable, not just the monthly figure, gives the clearest picture of cost.
- Can my guarantor be affected if I miss a payment?
Yes. If you miss payments and your guarantor is called upon, the missed payments may be recorded on both your credit file and theirs. It can also strain the personal relationship. This is worth discussing openly with anyone you ask to act as guarantor before you apply.
- What credit score do I need for a personal loan?
There is no single threshold. Each lender applies its own criteria. As a general guide, a stronger credit history tends to open up lower-rate personal loans. Checking your credit file before applying, and using soft-search eligibility tools, can help you see which products you are likely to be considered for without affecting your score.
- Is a guarantor loan secured on property?
No. A standard guarantor loan is unsecured, meaning neither your home nor your guarantor's home is used as collateral. The guarantor's obligation is a personal one: to make repayments if you do not. This is different from a secured loan, where an asset is formally charged as security.
- Can I switch from a guarantor loan to a personal loan later?
It is possible. If your credit history improves during the term of a guarantor loan, you may find you qualify for a standard personal loan at a lower rate. Paying off the guarantor loan early may carry an early repayment charge, so it is worth reading the terms before acting.