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what's involved when you are a guarantor?

The pros and cons of being someone's guarantor

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Be a Guarantor

  • Provide a credit future
  • Help build a credit file
  • Offset a poor credit history
  • Ensure you trust the applicant
  • Go in with your eyes open!

A Guide to Being a Guarantor

Guarantor loans give borrowers without perfect credit the opportunity to access finance. If you’ve been asked by a friend or family member about being a guarantor then it’s a great opportunity to support someone you care about.

The process is simple and straightforward, but you need to should only take on the task if you are fully aware of the obligations and possible risks you will be taking on.

What does it mean to be a guarantor?

Borrowing money today means having a good credit history. For anyone without this 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. This type of finance is offered to borrowers with poor credit, for terms of one to five years and for amounts between £1,000 and £15,000. The key difference to a regular loan is you, the guarantor.

If the person you’re guaranteeing is not able to make the agreed repayments under the loan then you will need to step in and help out. This gives lenders security when it comes to providing finance to someone who doesn’t have a good credit score. It also means the person you’re supporting will be able to get credit and may not have been able to do so without your help. 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 support that doesn’t involve you using your own resources if friends or family are in need of money, fast.
  • 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.
  • Enabling access to quick cash. Instant guarantor loans make it easy for people to borrow money quickly and tend to be faster than high street options – especially useful in an emergency.

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All about Guarantor Loans

Things to consider before acting as a guarantor

  1. 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 require that you are a homeowner. 
  2. You must make sure you understand the terms of the loan. Although the lending 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?
  3. 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 borrower will normally receive the money paid directly into their 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.

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How to Apply

Key questions to ask before being 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.

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Other Personal Loans

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.

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About Guarantor Loans

 

Representative Example (Loans £500+)

Loan Amount

£3000

Monthly Repayment

£134.10

Loan Term

36 mnths

Total Repayment

£4827.60

Rate of Interest

34.05%

Representative APR

39.9%

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