Written by A guarantor personal loan is a standard personal loan that uses a third party, known as a guarantor, to guarantee the payment of the loan. This arrangement can be useful for people who have difficulty securing a loan, such as those with a poor or limited credit history, and can help you maximise your borrowing power and secure lower interest rates.
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What are the requirements for a guarantor?
Your guarantor must be someone in a stronger financial position who is willing to assure the payment of your loan. This means that if you default on your personal loan, they will take on repayments until it’s fully paid out. Typically your guarantor would be someone you have a close relationship with such as a family member or close friend. They will also have to meet certain criteria, such as:
- Having a good credit history.
- Earning a stable income that is enough to cover loan repayments should you default.
- Being at least 18 years old.
- Living in Australia as a citizen or permanent resident.
Your guarantor may also be asked to put up their assets, such as equity in their home or a vehicle, as part of this arrangement. However, full control of these will revert back to the guarantor at the conclusion of your loan.
It’s important to note that while your guarantor agrees to shoulder responsibility for your loan, that this only comes into effect if you fully default on your repayments. If you’re able to keep on top of things, as the vast majority of borrowers do, your guarantor won’t become involved in the loan’s payment at all.
What loan types can I use a guarantor for?
The types of loans you can apply for with a guarantor are the same as any other personal loan. There are two main types of personal loans to choose between: secured and unsecured. There are key differences between them, so it’s important to understand how they work before applying.
Unsecured personal loans
The most common type of personal loans, unsecured finance is available to anyone without the need for you or your guarantor to provide a valuable asset as collateral for the loan. Loan amounts are available from as little as $2,000 all the way up to $75,000, with your approved amount depending on what you can comfortably afford (although lenders may be willing to grant loans beyond your standard affordability with a guarantor).
Secured personal loans
Unlike unsecured loans, secured loans do require that either you or your guarantor put forward an asset as collateral for your loan. Because of the added security, the maximum borrowing power sits at $100,000 (with a minimum of $15,000) and interest is offered at a substantially lower rate than an equivalent loan without security. As such, these loans are useful for larger sums of money and for borrowers (and guarantors) who have eligible assets at their disposal and want to reduce the cost of their finance deal.
Is a guarantor personal loan the same as a joint loan?
No, a personal loan with a guarantor is not the same as a joint loan. A guarantor-backed personal loan is suitable when someone needs help qualifying for a loan but needs someone else to act as security. A joint loan, meanwhile, is a loan taken out with another borrower (co-borrower) who is all equally responsible. Here’s a breakdown of how the two arrangements differ:
| Guarantor loan | Joint loan |
|---|---|
| Guarantor loan One person takes out a loan and the guarantor acts as security | Joint loan Two people take out the loan together. |
| Guarantor loan The borrower is primarily responsible for repaying the loan. | Joint loan All borrowers are equally responsible for the loan repayments. |
| Guarantor loan Primarily affects the borrower's credit, but can damage the guarantor's credit if the loan defaults. | Joint loan Affects the credit reports of all parties involved equally. |
| Guarantor loan Often used to help those with a poor or limited credit history. | Joint loan Typically used when both parties need the loan. |
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Frequently asked questions about guarantor personal loans
No – even with a guarantor, lenders won’t guarantee approval on any personal loans that they offer. This is because they’re subject to responsible lending guidelines enshrined in Australian law which they must abide by, the most important of which dictates that they can’t green light a loan that they’re not sure you can repay.
For example, if your lender only felt you were capable of repaying a $15,000 loan but you asked for $30,000, they wouldn’t be able to approve you for that amount.
No – even if you have a guarantor on your loan, your credit score will appreciate at the same rate as it would if you were repaying the loan as the sole member of the agreement. Credit reporting agencies and lenders will look to your repayment history, which won’t reflect the presence of a guarantor if you don’t default and allow you to build your credit score as a result.
Yes – there’s no obligation for you to supply a deposit on any personal loans, regardless of whether you have a guarantor attached. As such, you can access 100% financing for whatever you need provided you can afford to make repayments.
No – not all lenders offer guarantor personal loans. It’s important to check whether a lender accepts guarantors before you apply to avoid unnecessary rejections, which could negatively impact your credit score. If you apply through Savvy, we can help you find lenders that offer guarantor loans and meet your specific needs, ensuring a smoother process.
No – there’s no obligation for you to put down a deposit on any personal loans, regardless of whether you have a guarantor attached. As such, you can access 100% financing for whatever you need provided you can afford to make repayments. However, paying a deposit can boost your chances of approval.
Yes – if your guarantor decides not to be involved in your personal loan, you can cancel it prior to receiving your funds or repaying the entire amount if you haven’t spent any yet. You may also be able to refinance to another personal loan product which doesn’t include a guarantor with a different lender during your term and pay your existing loan out early. You may incur fees for doing so, however.
It can – the personal loan will show up on your credit file even if you aren’t involved in the repayments, which could (in theory) make it more difficult for you to get approved for other finance in the future. Additionally, if your borrower defaults on the loan and you’re unable to repay it, a default would go on your credit file and could severely damage your score.
Yes – there’s little point in starting an application for a personal loan if you need a guarantor but don't have one. Having a guarantor early on also allows you to assess their eligibility and ensure they meet the lender's requirements, helping you to avoid delays. Once your guarantor is confirmed, you can begin comparing loan options to find the best fit.
Yes – students can apply for a guarantor personal loan. A guarantor can strengthen your application, especially if you don’t have a substantial income or credit history as a student.
