Being a Loan Guarantor Guide

Over 16 Frequently Asked Questions

Why be a loan guarantor?

Help a friend or family member

  • Get a loan – it's more difficult with a poor credit history.
  • Get a more affordable rate – other bad credit loans can be expensive.
  • Repair credit history – paying back a loan will help repair their credit file.

What's a loan guarantor?

  • Guarantee - someone who “guarantees” a loan or credit agreement
  • Promise repayment - they promise to repay the loan if the borrower can't or won't
  • Required by guarantor loan lenders - so they can lend to those with a poor credit history


 

More Questions? See below.

mum with grown up kids Representative Example: If you borrow £4,000 over 36 months at a Representative rate of 49.5% APR and an annual interest rate of 49.50% (variable), you would pay 36 monthly instalments of £194.52. The total charge for credit will be £3,002.72 and the total amount payable £7,002.72.
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Frequently asked questions

1

Who can be a guarantor for a loan?

You need to be between 18 and 75 and a UK resident.

  • You can be a non-homeowner or tenant (but loans are typically cheaper if the guarantor is a homeowner).
  • Your credit file should be clean, or only marginally imperfect (clean credit file loans are typically cheaper).
  • You should have a regular income (which could be a pension).
  • You need a UK bank account with a debit card.
  • The loan will need to be affordable to you.

During the application process, you need to show that you can afford the repayments if the borrower defaults.

  • A regular income
  • Expenses that are less than income.

You need to be comfortable that if the borrower defaults you can afford their repayments.

2

What do you need to be a guarantor?

Affordability via a regular income

  • Good credit history
  • Aged between 18 and 75 years
  • a UK resident with a UK bank account and debit card

From a real-world point of view, it is also useful to have a good relationship and trust with the borrower.

3

Can I stop being a guarantor for a loan?

If you and your borrower decide within the first 14 days of signing the loan/guarantor agreement, it is possible to get out of being a guarantor 👍

4

Do guarantors get credit checked?

Yes 📝

Your credit file is checked when the signed completed application is sent to the lender.

  • When the borrower gets loan quotes using the Loan Apply Form, you (the guarantor) are not credit checked at this stage.
  • A key part of the loan approval process is checking the loan backer’s credit history is clean.
  • Your credit history dates back six years and the lenders are looking for missed payments, defaults or CCJ’s.
  • The credit search also looks for local electoral registration, and other relevant financial associations.

When the lender does their credit check this shows up on your file:

This generally is not a problem unless you do make multiple applications in quick succession, lenders do not like seeing this as it implies that you have had multiple rejections.

5

What is a guarantor liable for?

You're liable for the full balance of the outstanding loan from the time the borrower stops paying plus any interest and fees 💷

  • The same liability as if you had taken the loan yourself.
  • You should therefore be able to meet the full loan repayments on top of all other existing financial commitments.

If you do not, you are subject to the same implications as if you had defaulted on an unsecured loan that you had taken out yourself.

6

Can being a guarantor affect your credit rating?

Yes

  • If loan repayments are missed, this will affect your credit file and potentially your future ability to get credit.
  • Most lenders are reasonable and will give you the opportunity to make a payment if the borrower defaults, though you do need to be aware of this.

During the loan application process, you will be credit searched so

It's advisable the borrower does not make multiple loan applications with you as guarantor, this does not look good on your credit file.

7

Does being a guarantor affect your ability to get a mortgage?

It's possible

  • Mortgage brokers and lenders could consider potential loan payment that you could be liable for as the loan backer.
  • The mortgage lender may need to be satisfied that you can afford the mortgage as well as these loan repayments.
  • There's a possibility that this could reduce your affordability for a new mortgage and the amount you could borrow.

If you are considering a mortgage, we suggest you take professional independent financial advice prior to signing the guarantor agreement.

Apart from this, so long as you have a clean credit file, taking on this responsibility should not affect your mortgage eligibility.

8

Will being a guarantor affect me getting a loan?

Possibly?

  • As above covered in 7, there may be some lenders that could consider your potential loan payments as a guarantor when assessing loan affordability.

So, it is possible that this could reduce the credit available to you, so you should therefore consider your own needs for credit first.

9

Can you be a guarantor without being a homeowner?

Yes 😀

Some lenders offer better rates if they are a homeowner. The loan is not secured on your property, but lenders see homeowners as more stable and less risk.

10

Can you be a guarantor with bad credit?

Typically, lenders will only allow loan backers with a good to marginally imperfect credit score 😐

  • If your credit score is not good, it is unlikely that the application will be successful.
  • Some of our lenders do not need your credit file to be perfect, but the best value loans are only available to applicants whose guarantor has a fully clean credit file.

Please note that your credit history goes back six years, so you cannot have any missed payment or defaults on your file during this period.

11

What happens if a guarantor refuses to make the loan repayments?

If you refuse to pay, the consequences can be the same as if you defaulted on a loan you’ve taken out yourself 😦

  • Damaged Credit File - missed payments will show up on your credit file, which could impede your ability to obtain future credit, although the more payments that are missed the greater the impact.
  • Fees & Penalties - some lenders may charge fees as a penalty for missed payments, and this will obviously increase the debt that needs to be paid back and the overall burden on the borrower and you. Fees and charges vary from lender to lender. Make sure you find out the exact rates before the loan is taken out, so you are aware of potential additional expenditure.
  • County Court Judgement (CCJ) - Depending on your lender, after a certain number of missed payments they may apply for a CCJ for both you and the borrower. This is where you attend Court and if the Judge agrees that you owe the money, they will order it to be paid.
    • If the money is paid within a month of the order, the CCJ does not appear on your credit file.
    • But if the amount is not paid, the CCJ will show for the next six years severely affecting your opportunity to get credit (even a mobile phone contract).
    • If affordability is the issue, then the Judge may propose a payment plan, though the CCJ will still show up on your file.
  • Bankruptcy - If any payments ordered by the CCJ are not met, it is possible the lender may apply for bankruptcy. This is not common for anything other than larger loans. So, whilst the possibility of you being made bankrupt is highly unlikely, you should understand that this is the very worst case.

As you can see, there can be major implications to being a guarantor, so if you are not fully confident of your ability to make the loan repayments should the borrower default, then you are not suitable.

12

Can I change my mind about being a guarantor?

You do have a right to cancel 👍

  • Right to cancel

The Financial Conduct Authority which regulates loans and credit agreements in the UK provides consumers with the right to cancel a distance contract within 14 calendar days.

In other words, if the loan is cancelled within 14 days of signing the loan agreement, then the loan agreement can be terminated and your liability as a loan backer ends.

If you or your borrower are looking to do this, please check your lender’s specific procedures regarding cancelling the agreement and seek advice from moneyadviceservice.org.uk.

Please note that you may be liable for interest and fees for the time you, or the borrower, did hold the funds.

  • Contact the lender

If this 14-day window has been missed, at the time of writing none of our lenders will allow a guarantor to be removed from a loan agreement once it has been signed, so the only option would be to terminate the loan agreement by fully re-paying the loan.

It is always worth approaching your lender directly to ask them for any options that may exist, as lenders do sometimes change their terms and conditions.

13

Is there any benefit to me by being a loan backer?

The benefit to you is that you are helping a friend or family member access credit when they otherwise may be unable 😺

The guarantor loan is typically the most affordable type of loan for people with poor credit

  • Representative APRs typically ranging from 29% to 55%.
  • Compare that to other bad credit loans with APRs ranging from 135% to over 1,000%.

So, by becoming a loan backer you are helping someone potentially save a great deal of money.

14

I am the applicant’s spouse so can I be their guarantor?

Yes 👍

15

How do I know if the borrower will repay the loan?

This depends on how well you know the borrower 🧑‍🤝‍🧑

Your relationship with the borrower and the steps they take to make you feel comfortable should help you to decide if they will repay or not.

They should be able to tell you:

  • Why they want the money and what they are going to use it for
  • What income they have available to make the repayments
  • If they have taken time to show you that the money will be sensibly used
  • That they have the income to cope with the repayments

This may make you feel more comfortable? You could also ask them to provide you with an income and expenditure statement.

16

Been asked to be a guarantor but unsure?

When someone asks you to do this, especially if you are close, then there may be pressure to say yes?

If, however, you are not comfortable then this is something you should not do.

  • Once you have signed the guarantor agreement, it may be impossible to have your name removed until the loan agreement has been paid back.
  • To help build trust, ensure the borrower only gets a loan for the amount they need – i.e. if they need £1,000 they do not take a loan out for £2,000.
  • Also, ensure they can comfortably afford the repayments – we would do this by using our loan calculator to estimate the repayments.
  • Use the Citizens Advice Bureau’s Budget Sheet to map out their income and expenditure.

Rather watch than read? Being a guarantor video

If you would rather watch then this page’s information is covered in the video below.

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