Published: 22/03/2021

Should you be a guarantor for a loan?

Being a guarantor means helping someone else get a loan. If they fail to meet the repayments, you'll have to pay them instead. Before agreeing, you must consider the risks and decide if you should be a guarantor.

What would I have to do?

As guarantor, you agree to pay back a loan if the borrower cannot. To have a guarantor, the main borrower needs to apply for a specific guarantor loan.

Guarantor loans are usually for those who have bad credit history. Most guarantors are family members, spouses (who do not have joint bank accounts) or very close friends.

You take full responsibility to pay back the loan if the borrower doesn’t. If the borrower misses just one payment the lender may contact you for the repayment before the original borrower.

Most lenders will pay the loan into your bank account, rather than the person applying to borrow the money, which means you will have to transfer the funds to the borrower's account yourself.

If the borrower always pays the loan on time, you will not need to do anything. Compare guarantor loans

Why do lenders want a guarantor?

Lenders often ask for a guarantor if the person applying for a loan has a poor credit record or is borrowing for the first time.

A guarantor needs to be more financially reliable than the borrower. Lenders won’t usually approve a guarantor with past bad credit.

Can anyone be a guarantor?

You must be over 18 years old, preferring homeowners with a good credit record, in full time employment and be financially stable. You must be able to prove that you can afford to pay back the loan if the borrower cannot.

As a guarantor what are my risks?

Obviously, the biggest risk is having to pay back the loan because the original borrower doesn’t or can’t.

You need to be confident that the main borrower can afford the loan and that they'll always pay it on time and, to trust them because if they fail to repay the loan, it will have an impact on your credit score. A bad credit score makes it harder for you to get credit in the future.

You must also be able to repay the loan if they do not.

Will being a guarantor appear on my credit record?

If you’re named as someone's guarantor it won’t appear on your credit file. Provided the main borrower makes payments on time, your credit file not be affected.

Most guarantor lenders will run a credit check when you apply to be a guarantor, and a search may be added to your report.

If the main borrower defaults and you are asked to pay back the loan at any stage then the loan may be added to your credit record.

Can you change your mind about being a guarantor?

Not once you've signed the paperwork agreeing to be a guarantor. You cannot back out.

Normally there’s a 14-day cooling-off period. You could back out during that time, but the borrower has to give back the full loan amount. Without the original guarantor, they cannot keep the money from a guarantor loan.

What if you cannot pay back the loan?

If the borrower defaults and you are unable to make the payments for them, it can have serious consequences, including:

  • Damage to your credit record
  • Being taken to court
  • Repossession of your home or other assets

Protect yourself

If you agree to be a guarantor, take care.

  • Read all the documents carefully
  • Check how the borrower plans to pay the loan back
  • Put some extra money aside just in case they miss any payments
  • Sign an agreement with the borrower stating how they will pay you back (if necessary)