For aspiring loan applicants in dire financial straits, guarantor loans can offer a welcome lifeline – providing a possible solution even where a bad credit rating would otherwise be a deal-breaker. If you’ve tried to save for a car, holiday, wedding, home improvement project or other big-ticket purchase and concluded that a loan is the only way you’ll be able to afford it, this is one of many available routes – but before moving forward with any type of loan application, it’s important to go through the proverbial small print with a fine-toothed comb.
In this post, we’re taking a closer look at what it means to be a guarantor, who qualifies and what responsibilities they’ll have by signing on the dotted line. But if you’re keen to learn more about the loans themselves and the sorts of rates and loan terms you can expect, head straight to our dedicated resource.
What’s a guarantor on a loan?
“Figuring out who’ll act as your guarantor isn’t a decision that should be taken lightly – as this will need to be a person you know well and trust, and whom you know is in a suitably financially stable position.”
One of the defining characteristics of this type of loan is that a guarantor is required in order to provide security to lenders that, one way or another, the full loan amount will be repaid. Being a guarantor for a loan means agreeing that, in the event that you (the loan applicant) are unable to make a monthly repayment, they’ll make this payment on your behalf.
For this reason, figuring out who’ll act as your guarantor isn’t a decision that should be taken lightly – as this will need to be a person you know well and trust, and whom you know is in a suitably financially stable position. It’s likely your guarantor will need all the same assurances from their end, due to the leap of faith they’re taking by agreeing to fulfil this important role.
Who can be a guarantor for a loan?
Not just anyone can be a guarantor. There are various criteria to consider when choosing yours, beyond simply their willingness with regards to acting as a guarantor on your loan.
Lender or broker criteria varies from one to the next, but generally includes the following:
- They must be a UK resident, typically between 18 or 21 and 75 years of age
- They must have a UK bank account and debit card
- They must have a good or excellent credit rating (to assure lenders that they have a track record of responsible borrowing and timely repayments)
- They must be completely financially independent of the loan applicant (for example, you and your guarantor couldn’t share a joint bank account)
- They should typically be able to prove they have an income of £400 a month at an absolute minimum (subject to the criteria of the individual lender)
Some loan applicants attempt to find a guarantor online, but in order to have a mutually trusting relationship with your guarantor, they should be someone you know personally who you can depend on to satisfy their obligations should you find yourself in financial trouble and unable to pay.
What does acting as a guarantor entail?
A guarantor’s requirements and responsibilities are legally binding, and should be taken very seriously to protect both parties’ best interests.
Where a borrower is unable to keep up with monthly repayments on their loan, it becomes the guarantor’s legal responsibility to step in and satisfy the outstanding payment or payments – which may amount to the entire outstanding balance in a worst case scenario (should missed payments stack up). Failing to do so can ultimately result in damage to the guarantor’s credit rating and, at worst, could even lead to them being the subject of legal action. Put simply, avoid jumping into a decision without assessing all of your options first.
So, whether you’re applying for a loan or you’ve been approached by a borrower about being their guarantor, think long and hard about any criteria and responsibilities before moving forward.
And if you want any further information about the pros and cons of different loan types, how personal loans can be used or how to repair a bad credit rating, check out our blog for the latest from Jolly Good Loans.