Written by: Bryan Daly
Fact-checked by: Caitlin Wood
Trying to apply for a loan but can’t get approved? Do you think your credit is too low or your financial history is a little shaky? Have multiple lenders said no?
If you find yourself in this situation, you may want to consider a guarantor loan. Loans with a guarantor can be a great option if you’re struggling to get approved for a loan on your own.
What Is A Guarantor Loan?
A guarantor loan is a type of loan in Canada that you can borrow and repay over time. You’ll need to have someone to cosign your application, such as a trusted family member or friend. Typically, these loans are for $10,000 or less and can come with higher interest rates. The reason for this is that people who apply for them often have bad credit or spotty financial histories. Which can prevent them from qualifying for regular personal loans.
How To Get Loans With A Guarantor?
You (and your guarantor) can prepare for the guarantor loan approval process by:
- Check Your Credit – Request your credit report and score from Equifax and TransUnion. If your score is over 650, a guarantor may not be necessary. However, if you have a low credit score, having a guarantor can help you qualify.
- Compare Lenders – Don’t skip researching all the available lenders. Compare options and make sure to choose a legitimate lender who offers affordable loans and has good customer reviews.
- Gather Your Documents – Lenders may ask for several items to confirm your and your guarantor’s identity and income. This may include a government-issued photo ID, bank statements and/or pay stubs.
- Complete Your Application – Once you’re ready, you and your guarantor can apply online or in person. During the underwriting process, your lender may require additional banking or personal data before approving the loan.
What Do You Need To Qualify For Loans With A Guarantor In Canada?
Here are the general requirements to get a guarantor loan (for you and your guarantor):
- Have a Canadian address and be past your provincial/territorial age of majority
- Have a good credit score (650 – 900) and healthy payment history
- Have a stable source of income (employment, government benefits, etc.)
- Be discharged from any bankruptcies or consumer proposal
How To Find A Guarantor To Co-Sign Your Loan
When picking a guarantor to co-sign on your loan, be sure to choose a trusted friend or family member. Ideally, the guarantor you pick should be one who is already very responsible with their own finances and loans. They should also have a track record of making timely payments and have a healthy credit score.
What To Look For In A Guarantor
A guarantor is someone who agrees to take responsibility for your loan payments if you can’t afford them. This is why they must be trustworthy and financially prepared. Here are some other important things to look for in a guarantor:
- Age – Your guarantor must be past the legal age of majority in the province or territory the loan is coming from (at least 18 or 19 in Canada).
- Canadian Residency – To qualify with most lenders, a guarantor also has to live in Canada as a permanent resident or citizen for an acceptable period of time.
- Reasonable Income – Next, your loan guarantor needs an average income that would sufficiently cover any payments they would have to assume if you default.
- Good Credit – Potential guarantors should have decent credit ratings too. In this case, a credit score of 650 – 900 and a solid payment history should do the trick.
- Steady Employment & Housing – If your lender sees that your guarantor is able to hold down a job and pay their living costs, your approval odds will increase.
Before getting a guarantor loan, consider the potential ramifications of not being able to follow through with your payments. And how that could affect the guarantor and your relationship with this person.
Choose A Lender Who Specializes In Guarantor Loans
Not all lenders provide guarantor loans, so it’s in your best interests to find a specialized lender. Conventional lenders are not in the business of providing guarantor loans. Nor do they typically provide bad credit loans to those with poor credit scores. For this reason, you’ll have to do some research to find a lender who deals specifically with subprime borrowers.
What To Lookout For In A Lender?
That said, it’s important to be wary of the type of lender you work with. Some lenders in the subprime lending sphere may not have the borrowers’ best interests in mind, which can put both you and your guarantor in a precarious position if you’re not careful. It’s not uncommon for borrowers with a poor credit history to get scammed by lenders without even realizing it until it’s too late.
You can get a sense of whether or not a lender is shady right off the bat. If they promise to approve your loan without even looking at your credentials or the credentials of your guarantor. Steer clear of lenders who make these outrageous promises.
Reasons Why Someone Might Need a Guarantor Loan
There are plenty of reasons why you might have trouble getting approved for a traditional loan and may have to resort to a guarantor loan:
- You have bad credit
- You don’t want your credit checked
- You can’t get approved for the loan amount you need with a conventional loan
- You want to get a lower interest rate with the help of a guarantor
Anyone of the above-mentioned scenarios may be a reason to apply for a guarantor loan.
No Credit Check Needed
The great thing about getting a guarantor to cosign your loan is that your credit score won’t be taken into consideration. This is why this type of loan is such a great option for many Canadian consumers who are dealing with bad credit or other financial issues.
What Happens If I Can’t Find A Guarantor?
If you’re looking to apply for a guarantor loan, you need to find someone who is willing to be your guarantor. Whether it’s a lifelong friend or a close family member, it’s up to you to find someone. As mentioned before, you’ll need to do your due diligence to make sure you choose the right person, even if you have people in your life who are willing to step up and be your guarantor. But, not everyone will necessarily be qualified to take on this role.
If you can’t find a guarantor, it may be in your best interest to seek out another form of financing. Depending on the reasons why you want a guarantor, here are some alternative options:
- Bad credit lenders – These alternative lenders deal specifically with borrowers who have bad credit and place more weight on other factors when approving a borrower for a bad credit loan, such as income and employment status.
- Credit improvement products – You may want to give your credit a boost in order to increase your chances of getting approved for a conventional loan in the future. There are credit improvement products available out there that can help you improve your credit score for this purpose.
- Debt relief services – If you’re drowning in debt and are having a tough time digging yourself out of a financial hole, there are debt relief services available. These services can help you effectively reduce your overall debt and free up more of your money that would otherwise have gone toward paying off your high-interest debt.
- Credit counselling – If you’re unsure about what to do to improve your credit, you can work with credit counselling services that will educate you on what you need to do to improve your situation.
Loans With A Guarantor, An Alternative Option
If you’re in need of a loan but can’t get one on your own, guarantor loans may be a viable option. Just keep in mind that finding the right guarantor is just as important as finding the right lender. Trust is key when taking out a guarantor loan.