A guarantor is essentially someone who ‘guarantees’ someone else’s loan, mortgage or rent by agreeing to pay their debt if they fail to make their repayments or rent. It provides financial security to lenders by reducing the risk of their loan. Most of the time, all you’ll have to do as a guarantor is to provide details at the start of a loan or rental agreement, then, as long as the borrower or tenant is paying their debts on time, you as the guarantor will have nothing to do. However, if the borrower or tenant fails to pay what they owe, then you as a guarantor is legally required to make the payment on their behalf.

Almost anyone can be a guarantor. Most of the time a guarantor will be a parent or guardian, a spouse or partner, other family members and close friends. It is advisable to only by a guarantor for someone you trust, and you think you can trust with their money.

You will need to be over 21 years old, be financially stable and have a good credit history to be a guarantor. Lenders also prefer guarantors to be homeowners, be in full-time employment at the time of application, and not have any joint accounts with the person they are acting as guarantor for.

People need guarantors for a number of things, including loans, mortgages, rental agreements, and car financing. Here are the main reasons that these products may require a guarantor in the agreement:

• The borrower has just started a new job, only have a part-time job or are currently unemployed.
• They have a low or irregular salary.
• They have a bad credit history or do not have a credit history yet.

If any of these apply to you as a guarantor, then you need to make that clear to the person borrowing. The guarantor should always be more financially reliable than the person they are helping.

There are only costs to the guarantor if the person they are ‘guaranteeing’ for fails to make their payments. Then the guarantor will have to pay on their behalf. This cost will depend entirely upon the agreement. If you as the guarantor is unable to make the repayments, then you are under the same agreement as the borrower and you could risk having your assets seized.

Make sure you trust the person you are acting as guarantor for, and if it comes to it, make sure you make their repayments for them on time.

If a borrower fails to pay off their loan, mortgage or rent then guarantors are legally bound to pay off the amount remaining. When you act as a guarantor over any agreement, then you are also signing off on the agreement. For example, if you act as guarantor on a rental agreement then not only are you agreeing to pay for any outstanding rent of all tenants on the agreement, but you are also liable for any damage, cleaning costs or unpaid bills.

Again, it is important to stress that you must have confidence in the borrower’s ability to honour the financial agreement they have made. Before becoming a guarantor make sure you have asked yourself the following questions:

• Is the person I am ‘guaranteeing’ responsible, both in person and with their finances?
• Do they need the loan?
• Would covering their repayments affect your relationship?
• Why do they need me to be their guarantor?
• Can I afford to pay back the loan if they fail to do so?

In short – no – it is rarely possible to remove yourself as a guarantor once you have signed the paperwork.

There are some potential ways out of being a guarantor, but they will depend upon the agreement you signed. The easiest way out is during the initial 14-day ‘cool off’ period after signing an agreement. If the borrower returns the money lent and agrees to cancel the agreement, then you will no longer need to be their guarantor. Some agreements may have termination provisions allowing the guarantor to withdraw after a certain period of the fixed term. This is most likely in a mortgage agreement when the borrower has enough equity for their property.