Get a guarantor if you aren’t fit for a personal loan

Everything you need to know about guarantor personal loans
Last updated on August 4th, 2023
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Even if you fail the criteria set down by a lender for a personal loan, you might still apply for a personal loan by having a guarantor, such as a parent co-sign the loan.

According to the Reserve Bank of Australia, the debt of individuals in Australia reached 190% of their yearly disposable income this March. Even with such high levels of debt there are still many Aussies that find themselves in a position where they do not qualify for a personal loan.

Who can guarantee a loan?

guarantor loan is where a family member (i.e. parent, legal guardian, children, nephew, grandparents, or a former spouse) or a legal entity such as company or trust stands in as a guarantee for the loan. This means that if you default on the loan, the guarantor will carry the legal onus of the loan including all the extra fees, interest and charges.

What are the risk for the guarantor?

As mentioned above, the guarantor that acts as guarantee for the loan will be held liable for the debt if the borrower fails to meet the repayments. In addition, acting as guarantor could influence your chances for getting a loan yourself, being a guarantor of any facility, places this debt as a liability on your Assets & Liabilities which therefore has an effect on the affordability of the loan you may wish to take out. Furthermore, acting as a guarantor can strain personal relationships if the borrower does not repay the loan.

Ways to limit the risk for a guarantor

To limit the risk for a guarantor, the guarantee should be treated as a business agreement and emotions should be kept to the side. Getting a peer to peer loan agreement in place is way to acknowledge the arrangement and outline responsibilities. So, before signing, chat to a financial broker or a lawyer to get a better grip of what you will be getting yourself into.

Different personal loan structures where you can add a guarantor

Your first option would be a secured loan. A secured loan has the lowest risk for the applicant and guarantor, if anything was to go wrong, the financier can cover their cost by selling the vehicle. The second is an unsecured loan. No security, so therefore higher risk and higher fees. The third option, although not technically a personal loan, is an overdraft that allows you to withdraw up to a defined credit limit. There is no fixed time or assets required for an overdraft facility.

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This guide provides general information and does not consider your individual needs, finances or objectives. We do not make any recommendation or suggestion about which product is best for you based on your specific situation and we do not compare all companies in the market, or all products offered by all companies. It’s always important to consider whether professional financial, legal or taxation advice is appropriate for you before choosing or purchasing a financial product.

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Approval for personal loans is always subject to our lender’s terms, conditions and qualification criteria. Lenders will undertake a credit check in line with responsible lending obligations to help determine whether you’re in a position to take on the loan you’re applying for.

The interest rate, comparison rate, fees and monthly repayments will depend on factors specific to your profile, such as your financial situation, as well as others, such as the loan’s size and your chosen repayment term. Costs such as broker fees, redraw fees or early repayment fees, and cost savings such as fee waivers, aren’t included in the comparison rate but may influence the cost of the loan. Different terms, fees or other loan amounts may result in a different comparison rate.

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