Guarantor Personal Loans

Name: Guarantor Personal Loans
Creator: Savvy
Published: 2021-03-17T13:51:51+10:30

Home > Personal Loans > Guarantor Personal Loans

It won't affect your credit score.

Written by , updated on October 4th, 2023

Looking to apply for a personal loan with the help of a guarantor? It's always important to survey the market before committing to your personal loan, which you can do right here with Savvy. Find the best loan for your needs by comparing from a variety of offers around Australia here.

What is a guarantor personal loan?

A guarantor personal loan as a product is no different to any other standard personal loan, with the key difference being the presence of a guarantor. This is someone in your life, such as a parent or close relation, in a stronger financial position that agrees to guarantee the payment of your loan. This means that if you default on your personal loan, your guarantor will take on its repayments until it’s fully paid out.

It’s important to note, though, that this only comes into effect if you fully default on your loan. If you’re able to keep on top of your repayments, as the vast majority of borrowers do, your guarantor won’t become involved in the loan’s payment at all. While they may be asked to utilise their assets, such as equity in their home or a vehicle, as part of this arrangement, full control of these will revert back to the guarantor at the conclusion of your loan.

Aside from this, though, your loan will be the same as any other personal loan: you can be approved for any amount up to $100,000 and repay that over one to seven years on a monthly, fortnightly or weekly basis. However, what sets guarantor loans apart from the rest is the way in which they can maximise your borrowing power and help you access a low-cost deal to suit your needs, with the reduced risk of having a guarantor enabling lenders to offer lower interest rates.

What loan types can I use a guarantor for?

There are two main types of personal loans where a guarantor can come in handy: secured and unsecured personal loans. There are key differences between the two of these, 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.

Types of personal loan

Unsecured personal loans

With an unsecured personal loan, you can potentially borrow as much as $75,000 without the need to attach any valuable assets, such as your car, as security. These loans are the most widely available and often the quickest, with same-day approval possible.

Secured personal loans

Secured personal loans, on the other hand, make use of collateral. This lowers your risk profile in the eyes of a lender, potentially lowering your interest rate and expanding your borrowing power beyond what you may be able to get through an unsecured loan.

Variable rate personal loans

Variable interest rates remain open to fluctuation during your term. This means you can benefit from decreasing rates and save on your loan if the market heads in that direction, although you’ll also pay more if rates start rising.

Fixed rate personal loans

Fixed interest rates are locked at the beginning of your loan and remain constant throughout your repayments. This acts as a valuable protection against interest rate increases, as your loan will be unaffected, but you’ll miss out on potential drops as well.

Debt consolidation loans

If you’re paying off multiple debts at the moment, particularly those with high interest (such as credit card debts), consolidating them into one payment can not only make them more convenient to manage but also potentially save you money overall.

Travel loans

Looking to take off on a holiday with your family but want to pay it off at your own speed? Travelling can be expensive, so you can distribute the cost of your next trip over a period you’re more comfortable with by taking out a personal loan to pay for it.

Wedding loans

There are so many costs that go into making your dream wedding a reality, from venue hire to catering to dresses and suits and so much more. By taking out a personal loan, you can start planning the big day you want, even if you can’t pay for it upfront.

Renovation loans

Home improvements are desirable for a range of homeowners to help keep their living space fresh and interesting, not to mention increase its value. You can get past the financial hit of renovations with a personal loan paid in instalments.

Self-employed loans

Personal loans aren’t limited to PAYG employees, though. If you’re running your own business, you can still be approved for financing by submitting tax returns and other alternative documents instead of payslips and utilise your funds however you wish.

Student & education loans

There’s a variety of expenses which come with being a student, ranging from the cost of your courses, textbooks and computer to your accommodation. Taking out a personal loan can make these costs more manageable by spacing them out.

Green loans

Some lenders offer green personal loans, which are designed to be used for energy-efficient appliances and products such as solar panel and air conditioning installation in your home. You can qualify for lower interest rates and fees with this loan.

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How to apply for a guarantor personal loan

Find your guarantor

Compare personal loans with Savvy

Choose your lender

Gather your documents and apply

Sign off on the final loan contract

Find your guarantor

Compare personal loans with Savvy

Choose your lender

Gather your documents and apply

Sign off on the final loan contract

Frequently asked questions about guarantor personal loans

Will a guarantor guarantee the success of my application?

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.

What’s the difference between a guarantor and a co-borrower?

Unlike a guarantor, a co-borrower is involved in the process of repaying your personal loan alongside you. Arrangements of this nature are most commonly taken out by couples who are looking to consolidate or cover shared expenses and repay the loan together. These will also increase your chances of approval, borrowing power and lower your interest rate.

Can I take my guarantor off my personal loan?

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.

Does having a guarantor impact the growth of my credit score?

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.

Does a personal loan impact a guarantor’s credit file?

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.

Will I be able to access 100% finance with a guarantor?

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.