Who can be a guarantor for a loan? What you need to know before saying yes
Almost anyone can be a guarantor for a loan, such as a partner, friend or relative, so long as they are over 21 and have a good credit history. But being a guarantor for a loan is a big decision. Before agreeing to take on this role you should know exactly what you will be required to do.
A large number of people struggle to secure credit and using a guarantor is a popular solution. However, acting as a guarantor for someone’s loan comes with risks that you need to be aware of.
What does a guarantor do?
Put most simply, a guarantor puts themselves forward as security for another person’s loan. A guarantor is usually a close relative or friend of the borrower. They commit or ‘guarantee’ to covering repayments or even repaying an entire loan if the borrower isn’t able to do so themselves.
As a guarantor, you will need to sign a credit agreement alongside the borrower. Being a guarantor is a generous thing to do, but it’s vital to be fully aware of the risks and requirements involved.
Guarantors allow people with poor credit ratings and without assets against which to secure a loan, such as a home, to obtain credit which could be used for many different reasons. In some cases, guarantors help people pay for important life events or buy much-needed items, such as a car or household appliances. They might help family members to borrow cash for study, home improvements or for essential repairs or maintenance.
Who can be a guarantor?
To be a guarantor, you’ll have to be over 21 years old, with a good credit history and financially stable. You are more likely to be accepted as a guarantor if you own your own home (even if you have a mortgage on it).
Almost anyone can be a guarantor but most often it is someone who knows the person taking out the loan extremely well, such as a parent, sibling, godparent or close friend. Different lenders have different criteria when it comes to who can guarantee a loan: some say that you must not be financially connected, which usually rules out spouses or partners, while others say that partners are allowed but with extra checks to make sure that taking out a loan would not put either party under too much financial strain.
Being a guarantor is a major responsibility but providing you have a good credit score and/or, in most cases, own your own home and are aware of the risks involved, you can act as one. It obviously makes sense to be a guarantor for someone you trust will make the necessary repayments, as it will fall on you to cover any defaults with your own cash.
Do guarantors get credit checked?
Yes, lenders will need to check on the guarantor’s financial circumstances to find out whether they would be able to repay the loan if they were called upon to do so, much in the same way they would run a credit check on a standard loan applicant. A credit check will reveal how well the potential guarantor has managed credit in the past and how much outstanding debt they currently have, to see how much they could afford to pay back if needed.
When considering whether to become a guarantor, it is sensible to consider what credit you personally might need in the future, such as a mortgage, as lenders will consider the guarantor loan as part of your own financial situation and it might make it less easy to get credit for yourself.
Risks of being a loan guarantor
This is perhaps the most important consideration for you, as a prospective guarantor. It’s easy to feel pressure from the borrower you are helping out to sign a credit agreement that suits their needs. However, it’s important to ensure the terms also sit well with you.
Liability to cover repayments
This is a fundamental part of being a guarantor. If you’re not 100 percent happy with covering the repayments due, then you might not want to agree to be a guarantor. There is, after all, always a chance the borrower will default, however good their intentions, and you will be legally obliged to stump up the cash owed in this scenario.
Being a guarantor could affect your credit score
If the borrower you are supporting defaults on the loan, you could see a negative impact on your credit record. This is because, as the guarantor of the credit agreement, you take full responsibility for the loan despite not having received any of the funds.
Furthermore, if you then fail to step up to cover the late payment, there will be further damage to your credit score.
Debt recovery and CCJs
As a guarantor, and fully responsible for the loan, should you fail to fulfil your legal obligations you will be subject to the loan providers debt recovery policies which could, further down the line, mean a County Court Judgement (CCJ). This will make it difficult to obtain credit in any form in the future.
If you are also unable to make the repayments then you could even lose your home if you used this as security for the loan when signing as a guarantor. Even if your house isn’t used to secure the loan, if a County Court Judgement is issued for the repayment of the loan then the lender could request a charging order against any proceeds if the guarantor wanted to sell or remortgage their home.
Acting as a guarantor can help someone close to you to secure credit when they need it most, but it’s important that you ensure you are comfortable with the level of responsibility that this entails. It is also good to keep in mind that any repayment issues could cause personal problems between you and the borrower.
Other guarantor considerations
Being a guarantor is not something to be taken lightly, but if you make sure you have all the facts before agreeing to take on the role, then it can be extremely useful for the person who needs your support. Some other issues which guarantors should consider before signing up are:
Can a guarantor be removed from a loan?
In short, no. The reason that there are so many checks done on the guarantor by the lender is because they are an integral part of the loan. Once the loan agreement is signed, the only way that the guarantor can be relieved from the responsibility of the loan is for the borrower to pay off the loan early, for the guarantor to pay off the loan early or - in an extreme case - the lender goes out of business. Most loans can be repaid early so closing the loan account is often the simplest option, but you might get charged an early repayment fee or extra interest if you do. For the reason mentioned above, this is also why you cannot change guarantors mid-loan.
If the loan in question is a long-term one, such as a mortgage, then the likely scenario is that when it comes to remortgaging several years into the loan, the borrower might have built up enough equity to be able to take out the new mortgage on their own.
How can I complain about a guarantor loan?
The Financial Ombudsman says it receives complaints about guarantor loans from both sides of the story, borrowers and guarantors. Common complaints from borrowers related to the loan itself, that they shouldn’t have been given the loan or that their circumstances have changed and they can no longer afford the loan; while guarantors’ concerns range from feeling pressured into acting as a guarantor, not understanding that they would have to meet the repayments if the borrower didn’t, or not being able to afford the payments themselves. The Financial Ombudsman recommends that people should first talk to the lender to try and resolve the situation. If that doesn’t work, then they should contact the Ombudsman.
How many loans can I guarantee?
So long as you pass the relevant affordability and credit checks, there is no reason why you cannot act as a guarantor for several loans. However, it’s important to remember that with each loan comes an element of financial risk. Before signing up to act as a guarantor for more than one loan, ask yourself whether you could meet all the monthly repayments if all loans were to default at the same time.
Does a guarantor have to be a homeowner?
No, although it will add strength to your application if you are one.
Who might need a guarantor?
It’s not just people with past debt problems and a poor credit history that need the help of a guarantor from time to time. Guarantors do help people who are struggling to find a lender willing to consider their situation, but they can also simply help a family member or friend to secure a larger loan or better terms and rates.
Anyone who needs credit but doesn’t have equity against which to secure a loan may benefit from having a guarantor. Equally, borrowers with poor credit scores are often unable to find lenders willing to offer them a loan without the involvement of a third party who will put their own finances forward as security.
Borrowers who can sign a credit agreement alongside a guarantor might be able to choose from a larger list of loan options or from better loan terms and interest rates than those without a guarantor. Borrowers may also be able to take out much larger loans with the help of a guarantor.
Who offers guarantor loans?
Guarantor loans are offered by a variety of lenders and it pays to carry out some research into the market to ensure you are working with the right lender. In addition, the range of guarantor loans on offer is equally daunting so make sure you shop around to find the product that works for you, as the guarantor, as well as the borrower.
Indeed, as the guarantor, you want to pay special attention to the terms and rates being offered by lenders before you agree to support your loved one or friend who is borrowing.
Many high street lenders offer guarantor loans to borrowers, but there is also a range of lenders who now specialise in this type of lending. It’s up to you to do the research you need to, to make sure you understand what you sign up to.
What to look for when searching for guarantor loans
- Reputation of the lender
- Interest rates
- Terms offered
- Approval times
- Loan amount
- Length of the loan term
» MORE: How to get a guarantor loan
Sarah Bridge has been writing about business and finance since 2000. She was formerly Deputy Editor, Personal Finance, The Mail on Sunday and was previously the paper's Leisure Correspondent. Read more
Caroline Ramsey is a content creator who specialises in personal finance. More than a decade of working in editorial teams, she offers highly tailored content covering a number of topics. Read more