Guarantor loans have been part of the UK lending market for many years. The basic idea is simple: someone you trust agrees to cover your repayments if you cannot. But the detail behind that agreement matters a great deal, both for you and for the person agreeing to help.
The guarantor lending market has shrunk considerably since 2020, with several lenders exiting following the FCA's high-cost credit review, including Amigo Loans. Fewer active lenders means the products that remain tend to carry stricter criteria and, in some cases, higher rates.
What do the current rules say about guarantor loans?
The Financial Conduct Authority (FCA) regulates guarantor lenders in the UK. Following its review of high-cost credit products, the FCA has maintained requirements that guarantor lenders must carry out affordability checks on both the borrower and the guarantor before a loan is approved. These requirements are set out in CONC 5.2A (creditworthiness assessment) and CONC 15 (guarantor loans), within the FCA's Consumer Credit sourcebook. The FCA also introduced Consumer Duty in July 2023, which requires lenders to demonstrate that products deliver good outcomes for all customers, including guarantors. In practice, this means lenders must now take steps to satisfy themselves that the guarantor genuinely understands the commitment they are making, not merely that they have signed the agreement.
MoneyHelper's guidance notes that a guarantor is not simply a reference. They are a co-liable party. If the borrower misses payments, the lender can pursue the guarantor directly. The precise point at which a lender may do so depends on the wording of the agreement; most guarantor loan agreements are structured as indemnities, which is discussed further below.
Who does a lender typically accept as a guarantor?
Lenders set their own criteria, but common requirements include:
- Aged 21 or over (some lenders require 25 or older)
- A UK resident with a good credit history
- Not financially linked to the borrower (for example, not a spouse or joint account holder)
- Employed or with a reliable income sufficient to cover the loan repayments if needed
- A homeowner in some cases, though not always
With fewer active lenders in the market, criteria variation between those that remain is now sharper; it is worth checking each lender's published eligibility page directly before applying, as requirements around homeowner status and minimum income may be stricter than they were before 2020.
The guarantor will usually undergo a credit check. Before agreeing to proceed, the guarantor can ask the lender whether the application-stage check will be a soft or hard search. A soft search does not leave a visible mark on the credit file, whereas a hard search does. The check may begin as a soft search at the application stage, becoming a hard search once the loan is confirmed.
What is the guarantor actually responsible for?
In plain English: everything the borrower owes.
If the borrower stops paying, the lender will contact the guarantor and ask them to make the payments instead. Under the terms of a signed guarantor loan agreement, the guarantor is generally contractually obliged to cover those payments, though the precise legal position can depend on the wording of the agreement. Most guarantor loan agreements are structured as indemnities rather than guarantees: under an indemnity the guarantor's obligation is independent of the borrower's, meaning the lender can pursue the guarantor even if the borrower's debt is unenforceable for any reason. This distinction is a substantive reason why independent legal advice before signing is strongly recommended for larger loan amounts.
This can include the full outstanding balance, any arrears, and any charges that have built up. The important point is that the guarantor is not just backing the first missed payment. They are backing the entire loan.
If the guarantor is called upon to make payments and fails to do so, or if the account goes into default, that default can be recorded on the guarantor's own credit file, not just the borrower's. This may affect the guarantor's ability to obtain credit in the future.
Is a guarantor loan the right type of borrowing for my situation?
The information in this section is general guidance only and does not constitute personal financial advice.
Before applying for a guarantor loan, it is worth considering whether this type of product suits your circumstances and those of the person you are asking to act as guarantor.
Guarantor loans tend to be used where the borrower has a limited or adverse credit history and cannot access mainstream unsecured lending at an acceptable rate. However, the rates on guarantor products can be significantly higher than those on standard personal loans, so comparing the total amount repayable across different product types is a useful first step. Credit unions, for example, are a regulated alternative that may offer lower rates to members; by law, credit unions in the UK cannot charge more than 3% per month (42.6% APR) on loans, and some offer loans specifically designed for people rebuilding their credit history.
It is also worth having an honest conversation with the proposed guarantor about what the commitment involves before any application is made. If the relationship would be put under strain by the guarantor being called upon to repay, that is a material consideration. If you cannot find a suitable guarantor or no lender accepts your application, it can help to compare alternatives such as credit unions, secured loans, or budgeting tools before committing to any borrowing.
Why does the total amount repayable matter more than the monthly figure?
A simple way to think about it: a low monthly payment stretched over five years can cost far more than a higher monthly payment over two years.
For example, a £3,000 loan at a representative APR of 39.9% repaid over 36 months produces a monthly payment of approximately £130, giving total repayments of around £4,680. Extending the same loan to 60 months reduces the monthly payment to roughly £107, but total repayments rise to approximately £6,420. The monthly figure looks smaller, but the overall cost is considerably higher.
Note: representative APR figures mean at least 51% of successful applicants receive that rate. The rate you or your guarantor is offered may be higher.
Always look at the total amount repayable (TAR) figure in the loan agreement, not just the monthly amount. Lenders in the UK are required by the FCA to show this figure clearly.
What to read next
For a fuller explanation of how guarantor loans work, including eligibility, risks, and alternatives, read the Jolly Good Guide to Guarantor Loans.
If you are comparing costs across different loan types, Loan Interest Rates explains how to use APR and TAR figures together.
You may also find the Personal Loans guide useful if you are weighing up whether a guarantor product is right for your situation.
If you are concerned about existing debt or are unsure whether a loan is affordable, free and impartial advice is available from MoneyHelper and StepChange Debt Charity.
Sources
- Financial Conduct Authority (FCA), Consumer Credit sourcebook (CONC), CONC 5.2A (creditworthiness assessment) and CONC 15 (guarantor loans): https://www.handbook.fca.org.uk/handbook/CONC/ (accessed May 2026)
- Financial Conduct Authority, High-Cost Credit Review: Feedback Statement FS19/4, June 2019 (a historical document; current rules are set out in CONC and under Consumer Duty): https://www.fca.org.uk/publications/feedback-statements/fs19-4-high-cost-credit-review (accessed May 2026)
- Financial Conduct Authority, PS22/9 A new Consumer Duty, July 2022: https://www.fca.org.uk/publications/policy-statements/ps22-9-new-consumer-duty (accessed May 2026)
- MoneyHelper, guidance on guarantor responsibilities: https://www.moneyhelper.org.uk/en/borrowing/types-of-borrowing/guarantor-loans (accessed May 2026)