According to the Oxford Dictionary, a guarantor is:
A person or thing that gives or acts as a guarantee
There are several scenarios where you may be asked to provide a guarantor. Its quite common for landlords an mortgage companies to ask for a guarantor, especially if the applicant has a low credit score.
Another instance where a guarantor will be required is when you’re looking to borrow money from a guarantor loan lender.
Guarantor loans are a type of unsecured loan designed to help those with adverse credit histories.
The premise is very simple – the applicant must provide a second person (usually a relative, friend or colleague) to act as guarantor.
It is the borrower’s responsibility to make all payments on the loan. If the borrower fails to make a scheduled payment on the loan, the guarantor then becomes liable for the repayment.
The back-up of the guarantor means that lenders can lend to those who may have otherwise been turned down elsewhere.
Who can be a guarantor?
Historically, lenders would require the guarantor to be a homeowner, however most lenders will now accept tenants as guarantors too.
One thing that has remained consistent is credit history. All lenders will require the guarantor to have a good credit record.
Most lenders will ask that the guarantor is not financially linked to the applicant such as a partner or spouse.
The guarantor’s role
Trust and communication between an applicant and guarantor is key.
The applicant should make it clear to a prospective guarantor that they will do everything in their power to meet the scheduled repayment of the loan.
They should also make sure that the guarantor is fully happy and comfortable with the role in the process.
The primary responsibility of the guarantor is to promise to meet any repayments if the borrower fails to do so.
Can being a guarantor affect your credit history?
This is one of the most frequent questions that we get from potential guarantors.
In the event that the borrower fails to make a payment on the loan, the lender will then turn to the guarantor to make the payment.
Providing the guarantor (or applicant) makes the payment promptly, their credit history will remain unaffected.
If, however the guarantor fails to cover the scheduled repayment, both the applicant and guarantor’s credit file could be affected.
If the outstanding balance remains unpaid for a lengthy period of time, the lender may default the loan.
In some cases, the lender may look to take legal action against the applicant and guarantor. This will register as a county court judgement on the credit file of both the applicant and guarantor. This can significantly reduce their chances of being accepted for credit in the future.
Is my property at risk?
A guarantor loan is an unsecured loan meaning the lender does not require an asset as security for the loan.
As a result, the guarantor’s property is not at risk of repossession.
For more information on guarantor loans see our main page here.« Back to Glossary Index