Answers to frequently asked questions about guarantor loans
Generally speaking you can only be a guarantor on one loan at a time. This is because a guarantor has to demonstrate that they can afford to cover the borrower’s repayments (if required). It is unlikely that you could afford to cover two loans at the same time.
The relevant thing here is having sufficient income to cover someone else’s loan repayments. While you don’t have to be employed to be a guarantor you do need to demonstrate you can afford the loan repayments. It is extremely unlikely you would be able to do this if you were on benefits.
When a person signs a loan agreement to become someone’s guarantor they take on a legal responsibility. The commitment they made is in the terms & conditions they will have read. To refuse to abide by those conditions is to break the agreement. The consequences will be covered in the loan terms & conditions. So, not only could the borrower be shown to be in arrears or in default, but the lender could take the guarantor to court. Both of these outcomes is to be avoided as they have long term consequences.
To be a guarantor requires the person to meet a set of criteria specified by the lender in relation to age, income and credit status. The guarantor provides the lender with a commitment to make payments should the borrower be unable to. This commitment is what reduces the lender’s risk and enables them to lend. Hopefully the guarantor may never need to step in but this potential responsibility continues until the loan is fully repaid.
If you have struggled to get a more traditional lender to agree an unsecured loan then a guarantor loan could be the answer. There are other bad credit personal loans but a guarantor is likely to be the cheapest way to get what you need. But you must keep in mind that you need a guarantor. And the guarantor will need to sign the agreement too. To protect your relationship with your guarantor you need to behave responsibly.
Yes. In fact a family member is an ideal guarantor – they know you well and hopefully trust you to repay the loan on time each month. Another good source of guarantors is your friendship group although they may feel less inclined than family members to be your guarantor.
Once a guarantor has signed the agreement they are legally bound to act as your guarantor until your loan is fully repaid. So, any uncertainty about being a guarantor needs to be resolved before the documents are signed. The only other way possibly is for the loan to be repaid early so that the guarantor is released from their obligations.
It is only the borrower for whom the loan will appear on their credit report. The guarantor’s credit file will not be impacted by the loan unless the borrower falls into arrears. Then it possible that the outstanding amount will be added to their credit file.
If the borrower keeps the repayments up to date and ultimately repays the loan in full and on time then the guarantor’s credit file will never show mention of the loan. However, if the borrower falls into arrears, or worse they default, then it is possible that the guarantor’s credit score could affected as the debt may be added to their file.
To be frank lenders need the guarantor to have a good credit rating and know that the loan repayments are affordable for them. If they didn’t they risk their loan not being repaid by not only the original borrower but their guarantor too.