03 Apr 2020, Author:

So, you’re in market to borrow but you’re struggling to get a loan approved by your bank, building society or any of the other mainstream lenders that you’ve approached for credit. You’ve done your research into your options and decided that you want to apply for a Guarantor Loan.

The great news is that a Guarantor Loan is a great way to borrow money, often at better interest rates than bad credit loans, on fair terms and to help improve your credit rating by repaying the loan on time every month. Now though, you’re no doubt wondering how you’ll find a guarantor. If you’re asking yourself the following, then our handy guide below is for you…

  • ‘Who will I ask to co-sign the loan agreement with me?’
  • What’s are the criteria my chosen guarantor will need to meet to be approved?’

 

First things, first…

 

What does being a loan guarantor mean?

When someone agrees to act as guarantor for a loan, it means that they enter a legally binding credit agreement with a lender and the main applicant. The guarantor is agreeing to meet the main applicant’s monthly repayments if they default on the agreement and are are unable, or even unwilling to pay.

 

Guarantor Loans are more common than you may think. In 2018, over 150,000 Guarantor Loans were approved in the UK, and that number has been on the rise year on year since 2015.

Typically, a guarantor is:

  • a trusted friend or
  • a family member
  • someone who is financially independent to the main applicant

It’s common for parents and guardians to step in as a guarantor for their kids as they try to get approved for their first credit agreement. Or perhaps when if they are looking to buy their first home with a limited credit history. Many parents look at this as a route towards financial independence, with a safety net that they hope won’t be needed.

Bear in mind that when you ask someone to be a loan Guarantor, you are asking them to place their faith and trust in you that you’ll maintain the monthly payment schedule until the loan balance is cleared. These terms can stretch up to four or five years, so it’s important that you have a solid, long-term relationship with the co-signer. It’s wise to ask someone who knows you well and whom you are comfortable discussing your personal financial arrangements in detail with.

 

Are there any risks involved with being a guarantor?

 There are risks involved when you enter into any credit agreement. So, when a person agrees to be a guarantor for a friend or family member, there are of course risks involved for both parties. You should should carry out your due diligence and make sure you and your guarantor fully understand the terms of the agreement you’re signing and the implications of signing it.

However, if the main applicant repays the full loan installment due every month as they agreed. And just as importantly, pays the loan repayment on time, then the guarantor wouldn’t be required to do or repay anything, except from co-sign the initial loan paperwork.

 

Can the guarantor I choose have had bad credit in the past?

Any guarantor co-signing for your loan will be expected to have a strong credit history. Whilst the odd historical missed payment may not be an issue, recent defaults will mean that they’re unlikely to be accepted as the Guarantor for your loan application. You can both check your credit reports at Clearscore, Equifax any other Credit Reference Agency.

 

What’s other criteria will my guarantor need to meet?

The key question then, is what should I be looking for in a guarantor? Pretty much anyone can guarantee your loan, as long as they meet the lender’s borrowing criteria. Each lender is different, but largely, all ask that the person you select lives and works in the UK and isn’t already connected to you financially. This of course means that your husband, wife, or a partner that you share a joint bank account with can’t act as guarantor. But anyone other trusted friend or relation who meets the criteria can. So from your close circle this could be your:

  • A parent
  • An adult child
  • A good friend
  • A sibling
  • Aunt or uncle
  • Grandparent
  • Cousin

Your loan guarantor should be over the age of 21 and be financially stable with a fairly clean credit report. It’s not necessary for your guarantor to be a homeowner, though for some lenders that may increase the likelihood of the loan being approved. There are also specific Guarantor Loans that are secured on property. If you are asking your guarantor to co-sign for this type of agreement, you should ensure that they understand the serious implications of this.

 

The Loan Guarantor checklist:

Here’s a quick checklist of the minimum criteria your loan Guarantor should meet. They should:

  • Be a close friend or family member
  • Be financially independent from you
  • Have good credit standing, with no defaults or missed payments
  • Be aged between 21 and 75
  • Live and work in the UK, with a UK bank account and UK debit card.
  • Have an income from either employment, self employment or pension.
  • Provide full, informed consent to be the guarantor for your loan, whilst fully understanding the risks and obligations that that involves.

 

Who are other borrowers asking? Let’s look at the stats…

According to comparison site Finder, the most popular guarantor choice for applicants was parents, with over 40% of borrowers asking their mum and dad to co-sign. Interestingly, a quarter of all applicants asked their mum to solely guarantee their loan. A mere 2% choose to ask a work colleague.