A guarantor loan is one way to get a personal loan if you have bad credit and cannot access an unsecured loan on your own merits.
With a guarantor involved in your credit application, a lender has someone else to fall back on if you default on your debt repayment obligation.
What is a Guarantor?
A guarantor is someone who promises to repay a loan if a borrower is unable to do so.
Guarantors are often required when a person with a bad credit history or inadequate income applies for a loan.
The lender may ask them to find a creditworthy guarantor who co-signs the loan and pledges to repay it if the borrower defaults.
If both the borrower and guarantor cannot repay a loan, the lender may hire a debt collector to recover monies owed from both parties.
Depending on the situation and amounts owed, their assets can also be seized if a court judge decides that.
Loan Guarantor Requirements and Rules in Canada
Guarantor lenders generally expect your guarantor to have a good credit rating and be able to pay off your loan if needed.
They should:
- Be independent of you
- Be at least 19 years of age
- Be a Canadian citizen or resident
- Have a good credit history
- Not have trouble paying their bills, i.e. have a decent income-to-debt ratio
Some guarantor lenders may also require that your guarantor have a home.
Best Guarantor Loans in Canada
The only guarantor loan company in Canada is LendingMate. This company operates in Ontario and British Columbia.
LendingMate
If you need access to cash and do not qualify for a personal unsecured loan based on credit score, LendingMate can help.
It offers no credit check guarantor loans of up to $10,000 over a 36-60 month term.
The interest rate on this loan is 43% per annum, and there are no other fees.
Given that 95% of borrowers are approved, a LendingMate loan is almost guaranteed to be approved if you have a suitable guarantor in place.
Pros of Guarantor Loans in Canada
Finding a guarantor could mean the difference between getting approved for a loan and having your application denied by a lender.
Even with a bad credit history or no credit at all, you can be approved for a guarantor loan.
Applying for guarantor loans is easily completed online, and a company like LendingMate pays out the funds within 24 hours of accepting your guarantor.
Lastly, having a guarantor may help you qualify for a larger loan at a lower interest than regular bad credit or payday loans.
Downsides of Guarantor Loans in Canada
If the borrower cannot repay their debt, the guarantor becomes responsible for paying it.
This can severely damage their credit score and leave them struggling financially or even losing assets (such as a home).
Before guaranteeing a loan for anyone, make sure you trust them and consider the consequences should they default.
Also, if you decide you no longer want to be a guarantor for a loan, the loan has to be paid in full, plus accrued interest.
In essence, once you sign the documents to become a guarantor, you are liable until after it has been paid back.
Guarantor vs. Co-signer
A guarantor is not the same as a co-signer.
While a loan guarantor is only responsible for making payments when a borrower defaults, a co-signer co-owns the property, e.g. home, car, or other assets, and carries the same responsibility as the borrower for making payments from day one.
For example, if you are a “co-signer” on a mortgage, your name will appear on the title, and you co-own the property. You are also jointly responsible for making the monthly mortgage payments.
If you are a “guarantor” for a mortgage loan, you may be held liable for repaying it only after the lender has made reasonable efforts to get the borrower to settle their debt obligations.
Guarantor Loans Alternatives in Canada
You may be able to qualify for a loan without requiring a guarantor.
The two top platforms for bad credit loans are:
Loans Canada
Loans Canada
Loans Canada is a loan comparison platform for all kinds of personal loans, car loans, debt consolidation loans, and bad credit loans. This company holds an A+ accreditation with the Better Business Bureau and features multiple lenders on its website.
Interest rate: 1.99% to 46.96%
Loan term: 3-60 months.
Maximum loan amount: Up to $50,000.
Eligibility: Resident of Canada and employed for at least 3 months with proof of income.
On Loans Canada’s website
This loan comparison platform can be used for finding secured, unsecured, and guarantor personal loans.
It has partnerships with a vast network of lenders who offer loans up to $50,000 and terms ranging from 4 to 60 months.
Loan interest rates also vary from 2% to 46.96%, depending on your credit profile.
LoanConnect
LoanConnect
LoanConnect is a search engine for finding personal loans online from various lenders. You can use it to find a loan that works for your situation regardless of your credit score.
Interest rate: 6.99% to 46.9%.
Loan term: 3-120 months.
Maximum loan amount: Up to $50,000.
Eligibility: Resident of Canada and the age of the majority in your province or territory.
On LoanConnect’s website
LoanConnect calls itself “Canada’s Premier Personal Loan Search Engine.” You can use the platform to get loans up to $50,000, and the online application takes 5 minutes or less.
Loan rates vary from 5.75% to 46.95%, and funds can be borrowed for up to 60 minutes.
For car loans, the APR ranges from 1.90% to 4.95%.
Guarantor Loans FAQs
You may qualify for a guarantor loan with poor or bad credit. That said, the lender will only approve your loan if your guarantor has a good credit history.
If you can’t find a loan guarantor, you could opt for a bad credit loan, borrow from friends, carry a balance on your credit card, and get help from a credit counsellor.
Visit your bank or apply online using platforms like Loans Canada and LoanConnect.
It may help your application if your guarantor has a home or property, but this may not be mandatory.
No, they don’t need to have a job, but they must be able to show they have sufficient funds to repay the loan if you are unable.
Someone who is the age of the majority in their province, who has sufficient income, and good credit history.
You may be required to provide a guarantor when applying for a loan because you have bad credit (or no credit history), a low income, or have trouble paying your bills.
The lender can take further actions, including using the services of a debt collector and can take both the guarantor and borrower to court.
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