- Finding the right guarantor
- What is being a guarantor?
- Answers to your questions
The Needs of the Guarantor
If you are a borrower:
The idea of needing a guarantor for a loan may be new to you. But don’t worry – we have lots of information for you so you can quickly understand what a guarantor is, how to find one, and what a guarantor is expected to do.
If you’ve been asked to be a guarantor:
The basic idea behind acting as a guarantor is far from new. For instance, utility companies and landlords often require guarantors for the services they provide. It’s only in the last decade or so that there have been personal loans that have needed a guarantor. But we estimate that around 500,000 guarantor loans have been made in that time. Everything you need to know is below, including a detailed FAQ section.
What do you need to be a Guarantor?
These are the typical requirements that need to be met for a lender to accept a person as a loan guarantor. Each lender will have their own detailed criteria but this should be a good starting point:
- Be a UK resident (homeowner or non-homeowner)
- Be aged between 21 years and 75 years at the start of the loan
- Have a good credit history or at worst a slightly imperfect credit history
- Have a UK bank account & debit card (Visa or Mastercard debit / Visa Electron)
- Prove an income of at least £400 per month (employed, self-employed or retired)
- Be financially independent of the borrower (i.e. of independent financial means and with own bank account)
Once you’ve used our enquiry service and we’ve told you which lenders will lend in principle it is time to ask them what their precise requirements are.
Guarantor Criteria in Detail
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Homeowner vs Non-Homeowner Guarantors
Lenders used to prefer guarantors to be homeowners, but with the increase of lender competition this is no longer the case – non-homeowners are just as acceptable. Where there is a difference is in the maximum loan amount and the interest rate charged:
- Homeowner guarantor – loans up to £20,000 and lowest rates at c.20%-30% p.a.
- Non-Homeowner guarantor – loans up to £15,000 and lowest rates at c.45%-50% p.a.
The counterpoint to this is that it is often easier to find a non-homeowner to be a guarantor.
Credit History & Income
If a borrower misses a monthly payment then this is the point where the lender will ask the guarantor to step in and make the payment instead. With this in mind, it is important for the lender to know that any guarantor has the financial capability to do it. As part of the application process the guarantor will need to prove their income is sufficient and a loan repayment affordable. Also, they need to show they are creditworthy and don’t have financial problems of their own.
Financial independence means that the borrower and guarantor have their own income streams and their own bank accounts and can make financial decisions without reference to the other. So it is perfectly possible for a guarantor and borrower to be married, or to be in a relationship and living in the same home as each other. Both parties need to be able to show they could separately afford the loan repayments.
How to Find Your Guarantor
Not only do you need to be aware of lender requirements for your guarantor but you should:
- Find someone who trusts you enough not to default on repayments
- Ensure any guarantor fully understands their obligations
- Be aware of the impact on the relationship with your guarantor if you don’t make loan repayments. What would happen to it if they had to step in to make your payments?
What it Means to be a Guarantor
Borrowing money today means having a good credit history. For anyone without one it can be a struggle to borrow at reasonable rates. If you’re willing to guarantee repayments for someone then they will be able to apply for a guarantor loan.
If you’re thinking about being a guarantor there are some good reasons to do it, including:
- Helping out someone, for example, a grown-up child, who doesn’t yet have a financial history with which to convince a lender.
- Providing an option for you to support family or friends that doesn’t involve you using your own resources.
- Supporting someone who is looking to re-establish themselves financially. Sometimes the only way to repair mistakes with money in the past is to borrow sensibly and repay on time. By acting as a guarantor you’re giving the person you’re guaranteeing the opportunity to build better credit.
Things to consider before acting as a guarantor
- You must be eligible. Almost anyone is capable of being a loan guarantor but there are some basic criteria that need to be met. For example, you will need to be at least 18 years old, employed and you may need to earn over a certain amount. Individual lenders have their own criteria – some set a minimum age of 21 and others need you to be a homeowner.
- You must make sure you understand the terms of the loan. Although the loan is being offered to the borrower, the guarantee means that it could become your responsibility if that person can’t pay. How much are they borrowing, what’s the interest rate being charged and what’s the total amount to repay over the course of the loan?
- You should make sure that you understand how the loan is arranged:
- The borrower will make an application for a guarantor loan, naming you as the person supporting it.
- The lender will process the application, including a check against your credit history.
- If the application is successful then the funds are normally paid to the guarantor who transfers them to the borrower’s bank account.
- Repayments will start the month after the cash has been received.
- If the borrower is not able to make a repayment, the lender will ask you to do it.
- Where the borrower stops being able to make any repayments for the foreseeable future then you may need to take over responsibility for it.
Key questions to ask before becoming a guarantor
- Can the applicant afford the loan? Being a guarantor doesn’t mean automatically assuming you’ll have to make payments for the person applying for finance – this should fall to them. So, it’s important to establish that the amount they have chosen is affordable and there is no likelihood that they will fall behind on the payments.
- What is the loan for and why are you being asked to be the guarantor? When you’re supporting someone in this way you’re entitled to ask these key questions. For example, is it for something worthwhile or frivolous? Are they unable to make an application alone because of a historic issue with finance or lots of recent defaults?
- Are you able to repay the loan? You may be convinced that the borrower will make the repayments on the loan. However, before signing up to be a guarantor you should be sure that you can afford this yourself. Unexpected events may mean that borrower cannot make the payments, even if they intended to.
- Are you happy with the potential impact on your credit score? Being a loan guarantor won’t automatically affect your credit score. However, if the applicant defaults on the loan then your credit rating will be at risk if you don’t cover the repayments.
If you’re considering being a guarantor this is a decision that only you can make. It’s a great way to support someone without you having to lend them money, but also means you may have to take on someone else’s responsibilities in a worst-case scenario. The best approach is to find out as much as you can about the loan and decide whether you trust the person borrowing it.
What happens if the borrower defaults?
The lender will usually make contact with you to first ask you to help find out why the borrower has not made the payment and ask you to encourage them to do so. If they can’t make the payment then the guarantee agreement will require you to take over the payments of both interest and capital. The lender may also take action against the borrower for missing the payment. For most guarantors, this doesn’t happen and there will be no communication from the lender other than setting up the guarantee and bringing it to an end.
Guarantor Loans Guide
If you’re uncertain which type of credit might suit you or you have a money problem then one of guides may help you. We summarise each type of loan and their pros and cons, and address issues regarding debt and credit ratings.
Questions About Being a Guarantor
Also, see our more detailed borrower questions page.
Your friend or a family member has applied for a personal loan backed by a guarantor. This is likely to be because they have problems with their credit rating and have been refused loans by normal high street lenders. These lenders consider the applicant to be too risky.
By acting as a guarantor you are allowing the applicant to break the link between their credit past and their credit future. So long as they repay their guarantor loan in full and on time their credit rating will improve. But be clear that by acting as a guarantor you are taking responsibility for the loan if the applicant fails to keep to the repayment terms.
By co-signing the agreement with the borrower and the lender you are under a legal obligation to step in and help with repayments if the borrower cannot. So you should not agree to stand as guarantor unless you are completely comfortable with this.
First you need to meet the basic requirements. Second, you need to be comfortable that you will be credit checked. Third, you need to satisfy yourself that you know the borrower well enough that you can trust them to make the loan repayments. How would you react if you were required to step in and make a payment on behalf of the borrower? What might it do to the way you feel about your friendship? Would it impact your lifestyle?
These are the guarantor criteria for loans of £500 to £15,000.
The first thing to decide is if you are happy to act as the guarantor for the person who has asked you:
- do you know them well enough to judge if you can trust them to make the loan repayments on time and in full each month?
- has the applicant demonstrated to you that they can afford the loan – perhaps they have shown you their bank statements or payslips?
- ask yourself if you had the money yourself would you lend it to them? If you wouldn’t then perhaps you shouldn’t agree to be their guarantor.
If you are comfortable to act as their guarantor then the applicant will tell you how to provide your details to the lender. This is likely to require you to log in to the lender’s website and use a reference provided by the applicant. Don’t forget that the lender will want to credit check you too. They need to be confident that should the borrower fail to make a loan repayment that you can afford to.
Yes, because the guarantor might be required to make one or more payments if the borrower fails to they need to be creditworthy on their own terms. So, any guarantor needs to have a good credit rating.
A lender needs to ensure that a guarantor has the capacity to make the loan repayments if the borrower cannot. So, they will conduct a credit check to ensure that you:
- are who you say you are (i.e. an identity check)
- have not had trouble paying bills or similar in the past.
This type of credit check is called a Quotation search or a “soft” search. This type of search is visible on your credit report but it does not impact your credit score.
While any guarantor needs to have an income the income could be from a pension rather from employment. So being retired is OK so long as any upper age limit at the start of the loan period is not exceeded. This is often the age of 75.
You will be credit checked prior to the approval of the loan for the borrower. This is a “soft” search that does not leave an imprint on your credit file so does not affect your score. If the borrower can’t make a repayment and you have to do it on their behalf then this will not affect your score, unless of course, you have difficulty making the payments too.
No, if you are already standing as guarantor for one loan you cannot stand as guarantor for another until the first has been paid off.
The primary risk to you if you act as as a guarantor is that the borrower fails to keep up the repayments. In these situations, the lender has a right to require you to step in to make the payment. In the worst case, the lender may require you to repay the balance of the loan outstanding. If you are unwilling to do this then it will affect your credit rating and the lender could ultimately start legal proceedings against you and the borrower.
So you should only volunteer to act as someone’s guarantor if you would otherwise be prepared to risk your own money. You must be able to trust the borrower.
These days most lenders are able to process applications 100% online. Once the borrower has completed their part of the application the lender will contact you. If they cannot conduct the appropriate checks online you may be required to send them some documents.
- You will need to sign the agreement along with the applicant.
- You may be required to provide proof of identity (e.g. copy of passport) and copies of recent bank statements. However, our lenders are trying to simplify their processes and there is a growing likelihood that this will not be necessary.
- Direct Debit may be used to collect money from you in the event that payments are missed by the applicant.
You can change your mind about being a guarantor at any time until the loan has been paid out. Normally they are paid to the guarantor and it is then your responsibility to pass the money on to the applicant. Once you have done this you cannot change your mind about being the guarantor. You cannot pass the responsibility on to anyone else. So, do take time to consider any request to act as a guarantor and only agree to it if you are certain it is the right thing to do.
Yes, lenders will keep you updated on the borrower’s situation. The exact process will depend on the chosen lender. Some may send you a monthly statement so that you know that the loan is being repaid correctly. But rest assured that any lender would contact you if there were issues with the borrower. They would contact you with your approved method of communication.
Generally, lenders are flexible about this issue. The borrower can make overpayments and either reduce their payment period or skip payments in the future. The only thing they insist on is that the borrower makes at least the normal monthly payment agreed to on their application form.
We get some very specific questions about what defines an ideal guarantor – here are some of them and the answers we gave:
- I have a suitable Guarantor, however, he does NOT have a “Debit Card” – it may be possible to accept a guarantor who only has a credit card. Please enquire via our form.
- Can a person act as a guarantor for me if they are already acting as a guarantor for someone else – a person can only act as a guarantor for one person at a time.
- Please could you advise if you accept a guarantor who is over 60 and retired – almost certainly so long as they also meet the other general criteria
- Can my employer be a guarantor for my loan – yes, so long as they meet the criteria above
- If the guarantor is a UK homeowner, does this mean my loan is secured against the guarantor’s property – no, this loan is completely unsecured.
- Is the loan in my name or in the guarantor’s – no, the loan is in your name, not the guarantor’s.
- Please could you tell me if someone is able to act as a guarantor for someone if the guarantor is a homeowner but their home is subject to a freezing/restraint order pending legal proceedings – If a charge is registered against the guarantor’s property then it suggests bad credit for the guarantor in question in which case we’d advise them to find an alternative to avoid disappointment.
- My proposed guarantor is a pub owner and is not classed as employed. Is this any good – your guarantor must satisfy all the criteria above.
- My proposed guarantor has been rejected by the lender because of their credit status. Please tell me more – due to the data protection act you will have to take this up directly with the lender.
- Can the guarantor I select live at the same address as me – yes, so long as they meet all the criteria above.
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