Guide to Being a Loan Guarantor

It’s very important to have a great relationship with the borrower, plus

• Trust the borrower, that they will make all the loan repayments
• Affordability via a regular income
• Good credit history
• Aged over 18 and typically under 75 years
• A UK resident with a UK bank account and debit card

There are circumstances where you can stop 👍

• Before payout – before the loan has been paid out
• Cooling off period – if you and your borrower decide within the first 14 days of signing the loan/guarantor agreement during the ‘cooling-off period’

For detailed information see our page

• Can I Stop Being A Guarantor On A Loan?

• Someone you know has applied for a loan and they need to have a backer to support their application – you!
• You are liable for repayments if they cannot make them – if the borrower is unable to make any payments at any time, you will do this for them.

Before you e-sign the agreement you should make sure you

• Read documentation – you have read all the documentation you have been sent you which explains the terms and conditions of the loan that your relative, friend, partner, or colleague is taking out
• Understand your obligations – you need to look at exactly what obligations they have as a borrower because you will be guaranteeing all those obligations
• Understand the guarantor agreement – make sure you have read the guarantor agreement fully and understand what these documents mean and what you are guaranteeing (if necessary, take outside advice).

The minimum information you will need to know from the borrower includes

• Amount – the loan amount
• Term – the loan term
• Repayments – how much are the monthly repayments are
• Fees – any fees and charges

When you are happy with all the information that you have received and wish to proceed, you are ready to sign or e-sign the loan agreement with the lender.

• The Borrower – under normal circumstances, the borrower is expected to make all the loan repayments.
• The Guarantor – if for any reason the borrower stops making these payments, the guarantor will be called upon to step in and make the payments instead.

For more information see

• FAQ: What If The Borrower Stops Making The Repayments?

They are liable for the full balance of the outstanding loan from the time the borrower stops paying plus any interest and fees 💷

• The same liability as if they had taken the loan themselves.
• They should, therefore, be able to meet the full loan repayments on top of all other existing financial commitments.

If they do not, they are subject to the same implications as if they had defaulted on an unsecured loan that they had taken out themselves.

It’s possible, read on 🤨

• Potential loan payment – mortgage brokers and lenders could consider potential loan payment that you could be liable for as the loan backer.
• Afford both payments – the mortgage lender may need to be satisfied that you can afford the mortgage as well as these loan repayments.
• Reduced affordability – there’s a possibility that this could reduce your affordability for a new mortgage and the amount you could borrow.

If you are considering a mortgage, we suggest you take professional independent financial advice prior to signing the guarantor agreement.

Apart from this, so long as you have a clean credit file, taking on this responsibility should not affect your mortgage eligibility.

Possibly 🤔

As 2. above, there may be lenders that consider your potential loan payments as a guarantor when assessing loan affordability.

So, it is possible that this could reduce the credit available to you, so you should therefore consider your own needs for credit first.

With most lenders, if anything happens (such as repayments not being made) they will contact the guarantor to keep them informed. Plus

• Work with the borrower to try and get things back on track again
• If that is not possible, for example, if they are unable to get in contact with the borrower
• They may ask you the guarantor to step in and make the monthly repayments.

This is typically in the best interest of the account for both the borrower and the guarantor to stop arrears building and more serious action being taken further down the line.

For more information see

• What Happens If A Guarantor Refuses To Make Loan Repayments?

If you refuse to pay, the consequences can be the same as if you defaulted on a loan you’ve taken out yourself 😦

• Damaged Credit File – missed payments will show up on your credit file, which could impede your ability to obtain future credit, although the more payments that are missed the greater the impact.

• Fees & Penalties – some lenders may charge fees as a penalty for missed payments, and this will obviously increase the debt that needs to be paid back and the overall burden on the borrower and you. Fees and charges vary from lender to lender. Make sure you find out the exact rates before the loan is taken out, so you are aware of potential additional expenditure.

• County Court Judgement (CCJ) – Depending on your lender, after a certain number of missed payments they may apply for a CCJ for both you and the borrower. This is where you attend Court and if the Judge agrees that you owe the money, they will order it to be paid.
  • If the money is paid within a month of the order, the CCJ does not appear on your credit file.
  • But if the amount is not paid, the CCJ will show for the next six years severely affecting your opportunity to get credit (even a mobile phone contract).
  • If affordability is the issue, then the Judge may propose a payment plan, though the CCJ will still show up on your file.

• Charging Order – If the CCJ is not complied with, it’s possible that
  • Your lender could request a Charging Order against a property owned by either the borrower or the guarantor.
  • If in the future you wish to sell or re-mortgage the property on which the charging order has been placed, the amount owed to your lender will be deducted out of the proceeds and repaid to them.

• Bankruptcy – If any payments ordered by the CCJ are not met, it is possible the lender may apply for bankruptcy. This is not common for anything other than larger loans. So, whilst the possibility of you being made bankrupt is highly unlikely, you should understand that this is the very worst case.

As you can see, there can be major implications to being a guarantor, so if you are not fully confident of your ability to make the loan repayments should the borrower default, then you are not suitable.

YES 👍

Your credit file is checked when the signed completed application is sent to the lender:

• Not at this quote stage – when the borrower gets loan quotes using the Loan Apply Form, you (the guarantor) are not credit checked at this stage.
• Lender loans approval – a key part of the lender’s loan approval process is checking the loan backer’s credit history is clean.
• 6-year history – Your credit history dates back six years and the lenders are looking for missed payments, defaults, or CCJ’s.
• Other – the credit search also looks for local electoral registration, and other relevant financial associations.

When the lender does their credit check this shows up on your file

This generally is not a problem unless you do make multiple applications in quick succession, lenders do not like seeing this as it implies that you have had multiple rejections.

NO 👍

• Loans do not appear on the guarantor’s credit file
• Only the borrower will see the loan on their credit file, and this is what is recorded by the credit reference agencies.

This is unless the account goes into serious arrears, see:

• What Happens If A Guarantor Refuses To Make Loan Repayments?

It depends 🤔

• NO: when getting quotes – when the borrower is initially getting quotes, typically does not affect your credit file as lenders do a ‘soft search’ to check your eligibility.
• YES: during the application process – so suggested the borrower does not make multiple loan applications with you as guarantor, this does not look good on your credit file.
• YES: if repayments are missed – this will affect your credit file and potentially your future ability to get credit.

Most lenders are reasonable and will give you the opportunity to make a payment if the borrower defaults, though you do need to be aware of this.

NO 👎

• Low Score – if your credit score is not good, it is very unlikely that the application will be successful.
• Marginally Imperfect – some of our lenders may allow your credit file to be marginally imperfect (see how you can improve your credit score).

Please note that your credit history goes back six years, so you cannot have any missed payment or defaults on your file during this period.

YES 😀

• Most Lenders – of our lenders allow tenants and non-homeowners to be guarantors
• See Loans – available loans for non-homeowner guarantors here.

Some lenders offer better rates if they are a homeowner. The loan is not secured on your property, but lenders see homeowners as more stable and less risk.

YES 👍

RIGHT TO CANCEL

• 14-days – the Financial Conduct Authority (FCA) which regulates loans and credit agreements in the UK provides consumers with the right to cancel a distance contract within 14 calendar days.
• Loan Can Be Ended – if the loan is canceled within 14 days of signing the loan agreement, then the loan agreement can be terminated and your liability as a loan backer ends.
• Interest and Fees – note that you may be liable for interest and fees for the time you, or the borrower, did hold the funds.
• Contact Your Lender – if you or your borrower are looking to do this, please check your lender’s specific procedures regarding canceling the agreement and seek advice from moneyadviceservice.org.uk

IF THE 14-DAY RIGHT TO CANCEL WINDOW IS MISSED

• At the time of writing, none of our lenders will allow a guarantor to be removed from a loan agreement once it has been signed, so the only option would be to terminate the loan agreement by fully repaying the loan.
• Also see: How To Get Out Of Being A Loan Guarantor?

It is always worth approaching your lender directly to ask them for any options that may exist, as lenders do sometimes change their terms and conditions.

YES 👍

You are helping a friend or family member access credit when they otherwise may be unable.

The guarantor loan is typically the most affordable type of loan for people with poor credit:

• Lower Rates – representative APRs typically ranging from 29% to 55%; compared that to other bad credit loans with APRs ranging from 135% to over 1,000%.
• Longer-Term – affordable repayments spread over 12 months to 5 years, compared to up to 12 months for other bad credit loans.

So, by becoming a loan backer you are helping someone potentially save a great deal of money.

This will depend on how well you know the borrower 🧑‍🤝‍🧑

Your relationship with the borrower and the steps they take to make you feel comfortable should help you to decide if they will repay or not.

They should be able to tell you:

• Why they want the money and what they are going to use it for
• What income they have available to make the repayments
• If they have taken time to show you that the money will be sensibly used
• Repayments – that they have the income to cope with the monthly repayments

This may make you feel more comfortable? You could also ask them to provide you with an income and expenditure statement.

When someone asks you there may be pressure to say “yes”; to bear in mind:

1. No Turning Back – once you have signed the guarantor agreement, it may be impossible to have your name removed until the loan agreement has been paid back (Can I change my mind about being a guarantor?)
2. Minimise Borrowing – ensure the borrower only gets a loan for the amount they need – i.e. if they need £1,000 they do not take a loan out for £2,000.
3. Affordability – ensure the borrower can comfortably afford the repayments – we would do this by using our loan calculator to estimate the repayments.
4. Budgeting – use the Citizens Advice Bureau’s Budgeting Tool to map out their income and expenditure.

If, however, you are not comfortable then this is something you should not do.

NO, THESE ARE UNSECURED LOANS 😀

• Not secured against property
• Not secured against any other form of asset, such as a car

If however there was a situation where the borrower and guarantor defaulted on the loan and stopped paying, see

• What Happens If A Guarantor Refuses To Make Loan Repayments?

Typically, No 👎

As they’re required to make the loan repayments if the borrower stopped paying, if they were on more than one loan, this potentially gives them a high liability paying out for more than one loan at a time.

If they have a high income and good levels of affordability, all applications are taken on a case by case basis, we never say never, but it’s unlikely.