What they are, what the guarantor is actually signing up to, why most lenders have left the market, and the alternatives worth considering instead.
7 min read • Cash Train editorial team
Guarantor loans were once one of the main routes into credit for people with poor or thin credit histories. A third party — usually a friend or family member with stronger finances — agreed to cover repayments if the borrower could not. At their peak, guarantor lenders lent hundreds of millions of pounds a year in the UK. The market has since collapsed under regulatory pressure and a wave of mis-selling complaints. Understanding what guarantor loans are, and why the market imploded, matters if you or someone you know is still being offered one.
A guarantor loan is a form of unsecured personal loan regulated under the Consumer Credit Act 1974 and overseen by the Financial Conduct Authority (FCA). The borrower takes the loan and makes the repayments. A third party — the guarantor — co-signs the credit agreement and legally commits to repay the full outstanding balance if the borrower defaults.
Historically, guarantor loans were offered to borrowers who could not access mainstream credit on their own — typically people with County Court Judgements (CCJs), a history of missed payments, or very little credit history at all. Loan amounts ranged from around £1,000 to £15,000, with terms of one to five years. Rates were high: representative APRs of 39.9% to 49.9% were common, reflecting the elevated risk the lender was taking on the primary borrower.
The loan is structured as a single credit agreement to which both parties are bound. Regulated guarantor-loan lenders must carry out affordability checks on both the borrower and the guarantor before approving the application.
Signing as guarantor is a serious legal commitment that many people historically did not fully understand. Under the credit agreement, the guarantor is liable for the entire outstanding balance — not just a few missed payments. If the borrower stops paying after six months of a five-year term, the guarantor may be asked to repay the remaining 54 months of debt in full.
Lenders are required under FCA rules to pursue the borrower before demanding payment from the guarantor, but the guarantor's obligation remains live throughout the entire term of the loan. The lender can pursue the guarantor through the civil courts for recovery of unpaid sums, and a County Court Judgement against a guarantor has the same effect on their credit file as one against a borrower.
Guarantors do have a 14-day cooling-off right after signing, during which they can withdraw from the agreement under CCA 1974 provisions. Once that window passes, the commitment is binding. A guarantor who pays off the borrower's debt can seek to recover that money from the borrower, but in practice this often damages or destroys the personal relationship involved.
Marcus borrows £3,000 over 36 months at 49.9% APR. His sister Claire acts as guarantor. Marcus makes payments for eight months before losing his job and stopping entirely.
After pursuing Marcus without success, the lender contacts Claire for the outstanding balance. She pays to protect her own credit file. Her savings are cleared and the relationship with her brother is severely strained. Figures are illustrative.
The guarantor lending market has effectively collapsed in the UK following regulatory action and a wave of mis-selling complaints. Amigo Loans — at one point the dominant provider, lending over £1 billion per year — entered administration in 2022 after the FCA found that it had failed to carry out adequate affordability checks on borrowers and guarantors. Tens of thousands of customers complained to the Financial Ombudsman Service (FOS) that they should never have been approved in the first place.
FOS upheld the majority of complaints it reviewed, finding that lenders had routinely failed to check whether borrowers could sustainably afford repayments, and that guarantors had not been given adequate information about the nature and extent of their commitment before signing. Redress schemes were proposed but Amigo ultimately entered administration, leaving many complainants with little or no payout.
Other guarantor lenders — including TrustTwo and George Banco — either ceased trading or stopped accepting new applications. The FCA has made clear that any lender offering guarantor products must demonstrate robust affordability processes for both parties. As of mid-2025, the active guarantor lending market in the UK is a fraction of what it was five years ago. If a lender is actively advertising guarantor loans today, the FCA register and recent FOS decisions are worth checking before proceeding.
If you have a poor or thin credit history and need to borrow, there are options that do not require putting someone else's finances at risk. The right choice depends on how much you need, how quickly you can repay, and what your credit file actually shows.
If you acted as guarantor for a loan that was sold before the market contraction, you may have grounds for a complaint — even if the loan has been repaid. FOS decisions have established that guarantors can complain on their own behalf if they were not given adequate information about their obligations, if the affordability check on the borrower was inadequate, or if the lender put undue pressure on them to sign.
The complaints process starts with the lender directly. If the lender does not respond within eight weeks, or if you are unhappy with their response, you can escalate to the Financial Ombudsman Service (FOS) free of charge. FOS can award compensation and order refunds of interest and charges where it finds in the complainant's favour. The time limit for bringing a complaint to FOS is generally six years from the event, or three years from when you reasonably became aware of a problem.
Priya guaranteed a £5,000 loan for her nephew in 2019. She was never clearly told her liability extended to the full balance. When her nephew defaulted in 2021, Priya repaid £3,800 to avoid a CCJ. In 2023 she complained to the lender, who rejected her claim. She escalated to FOS.
FOS found that the lender's pre-signing information to Priya was inadequate and that the affordability assessment on her nephew had not been robust. FOS directed the lender to refund the £3,800 Priya had paid, plus 8% simple interest from the date of each payment.
This is a hypothetical example based on the types of findings FOS has published. Outcomes vary by case. See financial-ombudsman.org.uk for real published decisions.
If you are currently struggling with debt — whether as a borrower or a guarantor — free impartial help is available from MoneyHelper (moneyhelper.org.uk), StepChange (stepchange.org), and Citizens Advice. None of these services charge a fee, and they can help you understand your options before you take any further action.
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