Being a loan guarantor
As a loan guarantor you are helping a friend or family member to
It can be tough getting a loan with a poor credit file
So many of the high street lenders will not lend to those with a damaged credit history which greatly limits people’s options
Other loans for people with bad credit can be very expensive
It is very unfortunate that so many of the ‘poor credit’ type loans are so expensive, though the guarantor option is much more affordable
Repaying a loan helps to repair a person’s credit file
Taking out a loan and then successfully paying it back will help to repair someone’s credit file enabling them to get more affordable loans in the future
How it Works
A guarantor loan is a type of unsecured personal loan available to those with a less than perfect credit rating.
This type of loan is much better value for the borrower than the ‘typical’ bad credit and payday loan as the lender primarily looks at the status of the loan backer and not the borrower.
The loan backer is therefore also on the loan agreement, and would be liable to make the repayments if the borrower defaults.
The loan backer is normally therefore family, friends or colleagues with the borrower, someone they know and trust. Their details are required as part of the loan application and the loan assessment will include checking their credit file.
Some lenders offer better rates to applicants whose backer is a homeowner, though please note this is not to secure the loan. The loan backer’s commitment ends when the loan agreement has been terminated at the end of the loan.
Frequently asked questions
You will be liable for the full balance of the loan outstanding from the time that the borrower stops paying, which includes all the capital plus any interest and fees.
By being a guarantor on a loan you carry the same liability as if you had taken the loan yourself, so it is very important to make yourself comfortable that the borrower is fully able meet their loan repayments.
It is also important that you are comfortable that if the worst happened and the borrower stops making their repayments, that you are able to meet the loan repayments on top of your existing financial commitments.
The benefit to you is that you are helping out a friend or family member access credit when they otherwise may be unable too.
Yes, your credit file will be fully checked at the point the signed and completed application is sent to the lender, just as it would be if you were making a loan application yourself.
Please note that at the stage before this, when you make and enquiry to a lender via our Loan Apply form, you are not credit checked.
A key part of the loan approval process for the lender is checking that the guarantor’s credit file is clean, as the borrower’s file is typically not good.
Yes, you will need to have a good credit history if the loan application is to 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.
If you are not 100% sure is your credit file is clean, have a look at your full credit file via Check My File, who offer the most comprehensive multi agency credit file report in the UK.
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 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 loan 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.
Just to reiterate, unless you are fully comfortable about being a guarantor then do not do it. To discuss this further, contact moneyadviceservice.org.uk the governments free and impartial money advice service.
- You need to be between 18 and 75 and be a UK resident
- You can be a homeowner or non-homeowner (homeowner loans are cheaper)
- Your credit file should be clean, or only marginally imperfect (clean credit file loans are cheaper)
- You should have a regular income (which could be a pension)
- You need a UK bank account with a debit card
Most lenders do not allow the applicant’s loan backer to be their husband or wife.
We do though have one lender who does accept an applicant’s spouse in this role.
The short answer is that you do not know.
But your relationship with the borrower and the steps that they take to make you feel comfortable should go a long way in helping you to decide if they will repay or not. For example, they should be able to tell you clearly:
a. why they want the money and what they are going to use it for
b. what income they have available to make the repayments
If they have taken time to demonstrate that the loan money is being sensibly used, and they also have the disposable income to cope with the additional loan repayments, then this may make you feel more comfortable.
You could ask them to provide you with an income and expenditure statement to more clearly show that they can cope with the repayments.
Unless you are comfortable about being a guarantor then this is something that you should not do.
When someone asks you to do this, especially if they are very close to you, then there may be pressure for you to say yes and emotions can cloud judgement.
As mentioned above, once you have agreed to be a guarantor and signed the loan agreement, then it may be impossible to have your name removed until the loan agreement has been paid back.
So if you trust the borrower, have a good relationship with them and are confident that they will make the monthly repayments, then being their guarantor could help them out a great deal.
But if you feel uncomfortable, and are not confident that they will repay, then please do not commit to something that you may later regret.
- Should you lend money to a friend? The 6 key questions before you do - The Mirror. 2015-01-12
- Consumer Rights: A guarantor can be a friend indeed if you can’t get credit - The Independent. 2013-09-21
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