How much can I borrow from a guarantor lender?

Posted byDaniel Tannenbaum | Category useful information | Date 10 August 2015

One of the first things you consider when applying for a guarantor loan is how much you can borrow. The maximum available through a guarantor loan in the UK is £15,000 repaid over 7 years. Some people will try borrow as much as possible with others looking for specific amounts for particular purchase such as a home improvement, wedding, car or emergency. Below we provide insight into how much you can borrow from a guarantor lender.

Depends on the lender

All the lenders we feature on Guarantor Loan Comparison have a different criteria in terms of much they lend and who they lender too. For example, the maximum you can borrow from 1plus1 is £5,000 compared to SUCO Loans which is £12,000. Lenders will tend to have a different scoring system, targets and policy with how much they can lend.

The duration of your loan is also key. Those loans which you can take out for up to 7 years will allow you to borrow more because for high amounts, you need a lot of time to pay it back. Some lenders we feature offer loans for a maximum of 24 months with others offering loans for as long as 84 months.

Depends on the credit rating of your guarantor

The credit profile of your guarantor is key when assessing how much you can borrow. From the lender’s point of view, they want to know that if you are unable to repay your loan that your guarantor is reliable and can step in to make the repayment. Therefore, those guarantors with a good credit history are very favourable for the lenders we feature and are likely to help you borrow more. A good credit history suggests a strong history of paying loans on time, has not fallen into debt and does not have a lot of loans outstanding. As part of the application, lenders will check credit scores using credit reference agencies such as Equifax, Experian and CallCredit.

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To prove that guarantor lenders prefer the guarantors to have a good credit file, they request guarantors that apply to be homeowners. By having a mortgage, it suggests a strong credit history because you must have a very good record to be approved for a mortgage in the first place. Mortgage advisors will investigate your incomings and outgoings in thorough detail prior to approving your mortgage, so guarantor lenders can benefit from this information. In addition, a guarantor with a house, bricks and mortar, is less likely to go awol and skip town to avoid paying outstanding debt if they have a property. It also suggests that if they have a property, they should be able to raise funds if need be, whether it is getting a second mortgage, selling their home or renting it out to cover any expenses.

Consider that having a homeowner guarantor will always maximise the amount you can borrow, since there is added security in place. Whilst some lenders we feature such as Buddy loans and UK Credit accept tenant guarantors, they may offer a slightly lower amount because there is a slighter greater risk involved.  For instance, the latter lender offers a maximum of £6,000 for tenants compared to £10,000 for homeowners.

Depends on your affordability

Your affordability is key when deciding how much you can borrow. ‘Affordability’ refers simply to how much you can afford. For this reason, lenders need to know that you are in employment and earning a certain amount each month, usually at least £600. This is why guarantor lenders will sometimes ask for proof of your employment and income by requesting copies of your pay-slip and bank statement.

Those borrowers and guarantors that earn more from work and have more disposable income will be able to borrow more than those with lower income.

Lenders will also have to check the affordability of the guarantors too to check that they have income in order to be able to pay off the loan if the main borrower defaults.

A good example of an affordability measure is why lenders can calculate the borrower’s disposable income and determine how much they can borrow without falling into arrears. Those borrowers and guarantors that earn more from work and have more disposable income will be able to borrow more than those with lower income.

Repeat customers can borrow more

Typically those customers that have repaid their loan on time are able to borrow more and more on their repeat loans. This is provided that they pass the standard credit and affordability checks and their financial situation has not deteriorated.

The reason for this is that you increase your trust rating with the lenders and they see it as low risk to lend to you if you have a good track record with them.

However, the idea of guarantor loans is that when you have repaid your loan in full, you do not instantly need another one to tide you over. You should find yourself in a better financial position and have an improved credit score, allowing to access more affordable and mainstream finance in the future.

See how much you can borrow

If you want to see how much you can borrow, the best thing to do is apply with a guarantor lender and see for yourself. As mentioned, every lender has a different criteria so you may be able to borrow different amounts depending on the company you apply with. Make sure that you have a guarantor who you trust and who has a good credit history.

It is also important to be realistic when choosing how much you wish to borrow. The most natural instinct is to try borrow as much as possible, however, this may not always be the best thing for you. Remember that the more you borrow, the more interest that accumulates, so you have to be logical in how much you need in the first place. This can be achieved by carefully looking at your expenses and expected income over the next few years, as this will help you determine the amount you truly require.