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What to consider before becoming a guarantor

If somebody asks you to be their guarantor, you’ll need to consider whether you’re willing and able to make the payments if they stop. You’d be jointly liable for the full balance and could have your credit score damaged or even legal action taken against you if the payments aren’t made.

5 min read
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What does it mean to be a guarantor?

A guarantor is somebody who guarantees that a borrower can pay their loan, mortgage, or any form of credit. Guarantors can also be used to guarantee payment for products and services like rent. They do this by formally agreeing to take over payments if the borrower is no longer able or willing to make them.

For example, when somebody gets a loan with a guarantor, they take out the loan in their name and make the repayments themselves. However, if they stop making these repayments for whatever reason, the lender can then chase the guarantor for them instead.

The guarantor has to make the repayments and any outstanding money for as long as the borrower isn’t willing or able to make payments themselves. This is why it’s so important that you make sure you are happy and can afford to take over the borrower’s repayments in the event they stop making them.

Why would someone ask me to be a guarantor?

Somebody may ask you to be a guarantor for a number of different reasons:

  • If they need credit and can’t get access to it without having a guarantor, due to a thin or poor credit history.
  • You are a close, personal friend or relative of the borrower. People tend to ask other people they know well and trust to be their guarantor. It’s likely that if you are asked, it will be by somebody you know well. If your spouse asks you, you might not be accepted because the two of you share aspects of your finances. Some lenders are starting to accept partners with separate bank accounts.
  • You have a good credit history. Since the borrower typically doesn’t have a good credit score, they will need somebody who does to be their guarantor. It’s more likely that you’ll be asked (and accepted) if your credit score is high.
  • You’re an adult. In the UK you need to be over 18 in order to be a guarantor. Many lenders only accept guarantors who are over 21 because they’ll have had time to build up their own credit history.
  • You’re a homeowner. Many companies require guarantors to have a mortgage or own a home outright because this shows that they can manage their finances well. However, more and more lenders are now accepting renters as guarantors.
  • You have all the legal documentation required. When you apply to be a guarantor, you’ll have to undergo a credit check and provide proof of ID, bank statements and your bank and credit account details.

You may be wondering: Can a retired person be a loan guarantor? The answer is potentially, but the borrower might be restricted to certain credit providers. Many companies prefer to lend to employed people with a steady income because they believe that these people will be more able to make the repayments.

A retired person with a good credit score might still be accepted as a guarantor. However, this could mean the borrower finds themselves with a higher interest rate.

What should I consider before agreeing?

Becoming a guarantor is a legal obligation and should be seriously considered before entering into. There are two key points you should think about:

  1. You will be liable for the repayments if the borrower doesn’t make them. It doesn’t matter whether they stop making repayments because they can’t afford to, don’t wish to, or another reason – you will still be liable. This means you’d have to make the full repayments instead. Be mindful of whether this is something you’d be willing and able to do before agreeing to be a guarantor.
  2. You’ll be held jointly responsible if any legal action is taken. If both the borrower and you, the guarantor, fail to make repayments then the lender may be able to take legal action. As the guarantor you’ll likely face any legal action alongside the borrower. Make sure you consider this carefully before making your decision.

Does being a guarantor affect my credit rating?

Being a guarantor may affect your credit rating depending on whether or not both you and the borrower fulfil the terms you agreed to.

If the borrower makes their repayments in full and on time every month, their credit score will go up and yours will be unaffected. If they don’t, the lender can chase you for the outstanding money– as you become jointly responsible for all payments. This can affect your credit rating if you don’t pay either.

Once you, the guarantor, become equally liable for the repayments, your credit history is at risk if the borrower doesn’t pay. In order to protect your credit score in this scenario you’ll need to meet the monthly repayments on time and in full on behalf of the borrower.

Is it possible to stop being a guarantor on a loan?

When you agree to become a guarantor on a loan, you sign a legally binding contract. Once you’ve done this and the loan has been paid out, you won’t be able to stop being a guarantor on that loan.

This is because your credit history and financial circumstances influenced the lender’s decision to provide the loan in the first place.

It’s important to make sure that if the borrower stops making their repayments, you’re willing and able to make them on time and in full. If repayments aren’t made, you’re jointly responsible and must face any consequences alongside the borrower.  

Can I be a guarantor if I have bad credit?

It’s unlikely that you’ll be accepted as a guarantor if you have a thin or poor credit history. This is because the borrower is likely to have bad credit themselves. Plus, the lender takes your credit history into account when deciding whether to accept the borrower’s application. They make their decision partly based on whether or not they think you can make the agreed repayments.