What does a guarantor have to do?

As a guarantor you act as back up to the main borrower, usually a friend or family member, and guarantee that loan payments will be made.

A guarantor has full responsibility to pay back the loan. If the borrower misses just one payment the lender can chase you for the money before the original borrower.

Some lenders also pay the loan into the guarantor's bank account, rather than the person applying to borrow the money. So you may have to transfer the funds to the borrower's account.

If the main borrower continues to repay the loan on time you will not need to do anything.

Why do lenders ask for a guarantor?

Lenders usually ask for a guarantor if the person applying for a loan has a poor credit record or is borrowing for the first time.

A guarantor gives the lender a way to get back what they are owed from a more reliable person if the main borrower would normally be too risky to lend to.

Can anyone be a guarantor?

No, you will need to be at least 18 and have a good credit record. You will also need to show that you can afford to pay back the loan.

Some lenders set further restrictions on who they will accept as a guarantor, including:

  • Being a homeowner

  • Further age limits, for example being over 21

  • Being in full time employment

  • Not being the borrower's spouse

  • Having no shared financial accounts with the borrower

What are the risks?

The biggest risk is that the original borrower does not pay the loan - if this happens you will have to pay it instead.

This means you need to be confident that the main borrower can afford the loan and that they will continue to pay it on time.

You also need to be happy and able to afford to take on the payments if they default.

Does it appear on your credit record?

No, just being named a guarantor will not show up on your credit record.

So long as the main borrower pays back the loan on time it will not be listed on your credit report.

However, most guarantor lenders do run a credit check when you apply to be a guarantor, so a search may be added to your report.

If the main borrower defaults and you are asked to pay back the loan at any stage then the loan may be added to your credit record at this stage.

Can you change your mind?

No, once you have agreed to be a guarantor for a loan you cannot back out.

The exception is if you are still within the cooling off period, usually up to 14 days after the loan has been agreed. Even then you will be responsible for ensuring the borrower gives back the full loan amount.

What if you cannot pay back the loan?

If the borrower defaults and you are unable to make the payments for them, it can have serious consequences, including:

  • Damage to your credit record

  • Being taken to court to claim the money back

  • In some extreme cases, repossession of your home or property to pay back the loan

Protect yourself

If you decide to go ahead and be a guarantor there are some precautions you can take to protect yourself.

  • Read all the documents carefully

  • Check how the borrower plans to pay the loan back

  • Put some extra money aside just in case they miss any payments

  • Sign an agreement with the borrower stating how they will pay you back (if necessary)

Some lenders ask guarantors to list a possession as additional security - this item has to be worth more than the loan and could in extreme cases be repossessed to pay the loan.

Listing your home as security could put your property at risk should you and the main borrower be unable to pay the loan so avoid doing this if you can.

Some lenders accept other possessions like vehicles as security, while others do not ask for them at all.

Guarantor FAQs

Q

What happens if the main borrower dies?

A

You could be forced to pay back the rest of the loan. Check the terms and conditions of the loan.

Q

Could my home be put at risk?

A

Yes, if you are unable to pay back the loan when asked, the lender may apply for a charging order to force the sale of your home to pay off the loan.

Q

Do I have to be a guarantor if asked?

A

No, if you are not happy with being a guarantor it is your decision. No one can force you into being a guarantor.