Should I be a gaurantor?
It is possible to be a guarantor for a number of things. Whether it be to help someone get a loan, to support someone’s tenancy agreement or even to back up someone’s mortgage application, guarantors are often needed as extra financial security for loan or rental agreements. Although being a guarantor for someone will often be easy, it does come with some serious financial responsibility. Read our useful guide to find out what it means to be a guarantor and to help you decide whether you should commit to being one.
In This Guide:
- What is a guarantor?
- Who can be a guarantor?
- Why would I need to be a guarantor?
- Are there costs for guarantors?
- How liable are guarantors?
- Can I stop being a guarantor?
What is a guarantor?
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.
Who can be a guarantor?
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.
Why would I need to be a guarantor?
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.
Are there costs for guarantors?
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.
How liable are guarantors?
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?
Can I stop being a guarantor?
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.
Will being a guarantor affect my credit record?
Providing that the person you act as guarantor for makes all their payments on time, being named as a guarantor will not appear on your credit file. However, if you are required to make repayments on their behalf then it will be added to your credit record.
What is a guarantor check?
Before approving a guarantor loan, lenders run a number of checks to assess whether the borrower and guarantor will be able to repay the loan. Lenders will gain an insight into your credit history in order to help them decide whether to grant a loan.
What if I cannot afford the debts of someone I am acting as guarantor for?
Unfortunately, the borrower’s debts become your debts, so if they default then it could have some bad consequences for you if you can’t afford to pay on their behalf. It will damage your credit record, you could be taken to court, and you could even have your home and other assets repossessed.
What if the main borrower dies?
If the person you have acted as guarantor for dies, then you may still owe the lender or landlord for their debts. Make sure to check the terms and conditions of your agreement before committing to it.