A guarantor is a person who “guarantees” a loan taken out by someone else. This means they agree to repay the loan should the person borrowing it be unable to pay it back. Guarantors are required for a wide variety of potential lending agreements. For example, a guarantor might be needed for a tenancy agreement, a young buyer's mortgage or to help someone get a vehicle on finance.
Who can be a guarantor?
You'll need to be over 21, with a good credit history and financial stability.
Other than this a guarantor could be just about anyone, you just need to have a close enough relationship with the borrowing party to be willing to take on their debts. In most cases a guarantor will be a parent, spouse (so long as both have separate bank accounts), sibling or close friend. Generally the relationship needs to be close enough that open and honest discussions about the borrowing party's financial situation and ability to make repayments are possible.
Another factor to consider is the length of the loan period compared to the relationship between guarantor and borrowing party. For example, if you agree to be a guarantor on a mortgage, it's more logical if the borrowing party is your child or a close family member, as your relationship will likely be the same for the duration of the loan. Conversely, being a guarantor for a friend opens up the possibility of taking on debt for someone who you lose touch with in future.
If you are looking into a loan for a child or close family member, you can help them by sharing our guarantor loan comparison tool, allowing them to compare across a wide variety of lenders.
Why would someone need me to be a guarantor?
There are a few reasons someone might ask you to be a guarantor for a loan they're applying for. They might have:
- A credit score too low to be offered the loan
- No credit history (For example a first time buyer or someone new to the country)
- Insufficient financial stability (For example someone who has just started a new job)
- A low salary (The lender may be unsure of their ability to repay the loan)
Should I be a guarantor?
The factors to take into account when weighing up the prospect of being a guarantor for someone are generally...
- The strength of your relationship to the borrowing party
- The borrowing party's ability to repay the loan
- Your own ability to repay the entirety of the loan should they default
It wouldn't be advisable to become a guarantor if you aren't confident in any of these factors, as it could lead to a severe financial headache in the future.
However, if you are happy to guarantee a loan for someone, have confidence in their ability to repay it and would be comfortably able to cover the difference if they couldn't, then there should be no issues with becoming a guarantor.
It makes sense to go over payment plans and compare loans with the person you're going to become a guarantor for, to make sure they're getting the kind of loan you'd recommend. This will help ensure your confidence in the repayment, should it be passed on to you.
Can I change my mind about being a guarantor?
In short – no. It's essentially impossible to back out of a guarantor agreement on most types of loan.
There are a few slight exceptions, for example some lenders will offer a “cooling off” period. This is usually up to 14 days, and allows you to change your mind on the decision. However if you do, the borrowing party will be required to return the loan payment in full, as the loan will be invalid without the original guarantor.
In mortgages, it's possible for a borrower to remortgage their property once they've gained enough equity, and this remortgage could involve removing the guarantor from the agreement.
Other than that, you're likely to be liable for any loan you agree to be a guarantor for until it's paid in full.
Will being a guarantor affect my credit score?
In the event that repayments are defaulted to you, the loan will go onto your credit file. So long as the borrowing party makes their payments on time there doesn't need to be any record on your file of the loan.
What happens if I can't pay back the loan?
There can be significant repercussions in the event that you're unable to repay a loan you've agreed to be a guarantor for.
Missing repayments as a guarantor will affect your credit score, and could potentially lead to you being taken to court, or having your belongings repossessed.
This is particularly true if you've agreed to a guarantor agreement that lists a possession as additional insurance. In these cases it's advisable to list lower value possessions than your property, such as a vehicle or piece of jewellery.