Being a guarantor, or asking someone else to be one, is a big deal. So, before you take the plunge, make sure you know what to expect.
If you’ve hit a bump in the road of your hunt for a loan because lenders keep turning you down, one way to smooth it over could be by getting a guarantor to support your application.
There are a number of reasons lenders might turn you down. Perhaps you have a thin or non-existent credit history. Perhaps you have an unreliable credit history. Or perhaps you have too much credit to your name already. Whatever it is that’s holding you back, a guarantor could be the solution.
What’s a guarantor?
A guarantor is someone who promises to repay your loan if, for whatever reason, you’re no longer able to. Because of this, it can be tricky to find someone who’s willing to sign the dotted line, as it’s a bit of a burden for them too.
Who can be a guarantor?
Almost anyone can be a guarantor. More often than not it’s a parent who’ll put their finances on the line, but partners (providing they have a separate bank account), siblings, uncles, aunts, grandparents, or friends are also eligible.
There are only really three boxes that need to be ticked to qualify for a guarantor. They must:
1. Be over 21-years-old
2. Have a good credit history
3. Be financially stable.
Does a loan guarantor have to be a homeowner?
Absolutely not. However, if your guarantor is a homeowner this’ll add extra credibility to your application - just make sure they know, in the very worst case scenario, this could put their home at risk.
How? Well, if you’re unable to repay your loan, the burden will fall onto them, and if they’re not able to foot the bill either, their home could be repossessed to allow the lender to recoup their cash.
So, as you can see, asking someone to be a guarantor, or being a guarantor yourself, isn’t a question or decision that should be taken lightly.
Can I be a guarantor with bad credit?
If someone’s asking you to be a guarantor, odds are, their credit history isn’t all that peachy, and adding another person with a less-than-perfect credit score is unlikely to help their cause.
Because of this, it’s rare a lender will accept an application for a guarantor loan if the guarantor has bad credit too - it doesn’t give them the extra confidence they’re after.
Can I be a guarantor on two loans?
There’s nothing to say you can’t be a guarantor for more than one loan. That said, there are a couple of important things to bear in mind if you’re considering this.
1. If you’re a guarantor on two loans at the same time, both fall through, and you’re required to step up for each, you could be putting yourself under a lot of financial pressure. If you’re certain you want to go through with this, just make sure you’re absolutely sure you can afford it first.
2. When an application for a guarantor loan is lodged, lenders will be able to see the guarantor’s credit file too. This means they’ll be able to see you’re already a guarantor, and this could mean they’re less likely to accept your application.
The main reason for this is they might be worried you won’t be able to fulfil your role if you’re already committed to someone else’s debt.
Do guarantor loans affect credit?
As long as the main borrower keeps up with their repayments, being a guarantor won’t affect your credit rating. However, if they don’t keep up with their end of the agreement and the loan falls into default, it’ll be added to your file too - which will harm your rating.
Does being a guarantor affect me getting a loan?
Yes, it could. When you’re applying for any type of credit lenders will look at all your income and outgoings (including debts) to see if you can afford the credit you’re asking for, and they’ll take the loan you’re a guarantor for into consideration too.
Even though you might not ever need to step in and actually make the borrower’s payments, they have to take every possibility into account. And, if you were required to pay someone else’s debt down the line, it could affect your ability to repay your own.
Can a guarantor stop being a guarantor?
Once you’re in, you’re in. There’s no going back.
Because the decision was made to process your partner, sibling, or grandma’s application based on your credit history, employment status and other contributing factors, you can’t be removed from the loan after it’s been paid out.
This is another reason you should carefully think about being a guarantor before you say yes. Although your financial set-up might be comfortable now, your circumstances can easily change - for example, you could lose your job, or your rent might go up - and impact your ability to meet the demands of being a guarantor.
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Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender.