Things to think about when becoming a guarantor for a loan.
In this day and age there are a high number of people who simply struggle to secure and be approved for any form of credit, this can be for a number for reasons.
However using a guarantor is fast becoming a common and popular solution to this.
Being a guarantor for someone else does carry a few important points that should be aware of.
What does the guarantor actually do?
The guarantor will offer to act as security for someone else’s loan.
Although the guarantor can be anyone the borrower knows, the guarantor is usually a member of family or a close friend.
They will agree to cover payments if the borrower doesn’t pay for any reason.
When the borrower is taking out the loan, the lender will ask the borrower to also sign the paperwork to agree to this.
The lender will also explain the role of the guarantor in more detail.
Becoming a guarantor can be seen as a caring act, but before you do make yourself aware of what’s actually involved.
A guarantor will help someone, usually a close friend or family member borrow from a lender.
This helps the borrower to build their credit rating back (as long as the loan is paid on time) and allows them to open up other lending/credit opportunities.
A guarantor usually helps the borrower take out a loan to for an urgent or important purchases, ranging from everyday household appliances, like fridges, TVs or to help purchase a car, motorbike or another vehicle.
Guarantors also help borrowers lend money if they need to refurbish there house cover important bills.
People that may need a Guarantor?
This is quite an interesting question. Most assume that a guarantor is needed as the borrower has a bad or poor credit rating and lenders won’t lend to them.
Although a lot of guarantors are used for this, there are also various other reasons why a guarantor may be needed by a borrower.
Some lenders require a guarantor if the loan is larger than average or to simply secure better rates.
Borrowers with poor or bad credit who are able to use a guarantor can usually get credit or loan this way and slowly build their credit back again.
Who can be a guarantor for a borrower?
A guarantor can be someone who has a good credit rating, someone who has borrowed in the past and paid back on time with no problems or late payments.
Usually a guarantor owns their own home, although this is not necessary.
In most cases the guarantor will be someone that trusts the borrower, so a close friend or family member. Remember if the borrower does not pay, the guarantor will be expected to cover repayments.
Which lenders offer guarantor loans?
There are various lenders that offer guarantor loans and these have become popular over the years as they allow borrowers to lend, typically borrowers who have struggled to get credit in the past.
When looking for guarantor loan make sure you do your research as rates can vary, so make sure the rates, repayment and term of the loan work for both the borrower and the guarantor.
We compare most of the guarantor lenders; we also use a pre-approved scoring system that doesn’t affect your credit score.
The main risks involved for a Guarantor?
As a guarantor this is part of our guide is really important for you.
We all want to help family and friends and saying ‘no’ is usually quite hard.
Make sure that you are happy before acting as a guarantor for a borrower.
Responsibility to cover repayments
Keeping things simple, if the borrower does not pay the loan, the guarantor will be responsible to cover the repayments.
We could go into more detail here, but that’s it, in a nutshell.
If the borrower doesn’t pay, the guarantor needs to.
Impact to your credit score
As a guarantor, if the borrower does not pay, this can also have an impact on your credit score, your credit score can be hurt and drop, which means you, could also struggle to get credit in the future.
This is why becoming a guarantor should be considered carefully.