Guarantor Loans — An Alternate Option for Some Borrowers

guarantor loan

For most Canadians, a personal loan — big or small — is an eventual necessity. Maybe it’s to pay for a wedding, renovate the house, purchase a car, or something unexpected. We all need a little extra cash for life’s twists and turns.

Unfortunately for many Canadians, a personal loan is just beyond reach. Each month hopeful borrowers are denied due to low credit or no credit. Credit scores in Canada range from 300 up to 900. The average Canadian scores around 600, not great for those needing to take out a loan.

A survey conducted by Finder found that 65.33% of those asked had taken out a personal loan. This equates to over 17 million Canadians between the age of 20 to 74 but doesn’t address those unable to secure a loan.

Don’t worry. If you need a loan and have a less-than-ideal credit history, a guarantor loan is just for you.

What is a Guarantor Loan?

A guarantor loan is a type of unsecured loan that is backed by a third party who promises, or guarantees, to pay in the event of a default. That third party is often a family member or trusted friend — someone with a better credit history who will vouch for you in case you default on the loan. This means that if the original borrower fails to pay the loan, the guarantor will be legally obligated to pay the debt.

Guarantor loans often come in the form of unsecured personal loans but can also be a mortgage. For borrowers with a low credit score, or no credit, a guarantor loan offers the opportunity to secure a loan. An online application is all that it takes to start the process!   

Guarantor, Cosigner, and Joint Borrower — What Do They All Mean?

If you’ve considered a guarantor loan, you may have stumbled over the different terminology. Here’s what you need to know:

Guarantor. The guarantor offers a promise, or guarantee, to the lender that the loan will be repaid. While liable for repayment in case of default, the lender can only pursue the guarantor after exhausting collection against the primary borrower.

Cosigner. The lender requires cosigning of the loan as the original borrower is considered a liability. Like the guarantor, the cosigner adds stability and promise of payment to the loan. The cosigner is also liable for the loan. Importantly, if the loan goes bad, the lender can pursue both the borrower and cosigner for repayment. A cosigner has a claim to the assets purchased by the loan.

Joint Borrower. Also called a co-borrower or joint applicant. The joint borrower applies alongside the primary borrower. This is usually a partner or spouse, who is equally responsible for payments on the loan.

What Are the Pros and Cons of a Guarantor Loan?

Since the 2008 financial crisis, the popularity of guarantor loans has exploded. While an important alternative to quick cash or payday loans, there are advantages and disadvantages.


  • #1. Opportunity for those with poor credit or no credit to receive a loan.
  • #2. Borrowers can get a larger loan amount with a guarantor.
  • #3. Paying off a guarantor loan successfully can help repair poor credit.


  • #1. Interest rates are higher than normal personal loans.
  • #2. It may be difficult to convince a friend or family member to support the loan.
  • #3. Your guarantor, usually a friend or family member, is liable if you don’t pay.

Questions to Ask Before Becoming a Guarantor

Guaranteeing a loan can help a friend or family member who struggles to obtain a loan. While helpful, it isn’t without risks. If you are considering becoming a guarantor, make sure to answer these five questions before signing.

  • Can you afford one or more monthly payments if the borrower misses a payment?
  • Can you afford to pay for the entire loan in the case of a default by the borrower?
  • Do you trust the borrower to make payments and complete the loan on time?
  • Will being a guarantor possibly hurt your ability to secure a loan in the future?
  • Can your relationship with the borrower survive if the borrower defaults?

A Good Loan Alternative

A guarantor loan is a good way for those with poor or weak credit to get access to a loan. While the rates can be higher than a traditional personal loan, they are still lower compared to quick cash loans. A successful loan can build positive credit, establish trust, and help with an unexpected expense. To apply for a guarantor loan, click here.


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