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What is the responsibility of the guarantor

 

The guarantor has a very important role to play in the loan transaction. A guarantor with a good credit history can play a big part in the getting the loan approved in the first place. But more importantly, if the main borrower fails to repay their loan, the guarantor is required to cover the cost of their repayment. 

A guarantor is usually someone that the borrower knows and trusts. The most typical ones are spouses, siblings, parents, close friends and relatives. For most of the lenders we feature, the guarantor needs to meet the following criteria:

  • Over 25 years
  • UK resident
  • In employment earning at least £600 per month
  • Working debit card, email address and mobile phone
  • Good credit rating

Guarantors are required to be at least 25 to reflect the responsibility and financial implications involved. They need to be living in the UK, in employment, have a working debit account and be contactable. The guarantor tends to have a better credit rating than the main borrower and should be in a financial position to repay the loan and interest if the opportunity arises.

What is required during the application process? 

When the main borrower applies for a guarantor loan with one of our featured lenders, they will be required to enter details about themselves and their guarantor. The information required includes, name, address, contact details, employment status and bank details.

The guarantor lender will run a credit check on both the borrower and guarantor. Ideally, the guarantor needs to have a good credit rating as this suggests that they are low-risk and likely to be able to repay the loan if the main borrower fails to do so. As a result of the credit check, a footprint will be left on the guarantor’s credit file to highlight that a loan application has been made in their name.

The lender will always run some affordability checks to determine how much the applicant can borrow. To confirm employment and income, the lender may request a copy of the applicants and guarantor’s bank statement or pay-slip. This can be scanned and sent via email or post to the lender.

If the credit and affordability checks have been successful, the guarantor will be required to co-sign a loan agreement with the borrower. The loan agreement is typically sent to all parties involved via email and when clicked on, it is available to read and can be signed using a pin code sent by mobile phone.

The guarantor may receive a phone call from the lender to confirm their identity, discuss the terms of the loan and ensure that they understand their responsibilities.

Receiving and transferring the funds

If all parties have signed the loan agreement and all the final checks have been approved, our lenders will typically transfer funds within 48 hours.

Some lenders will send the money to the guarantor’s debit account first. This is used as a security check and also gives them the opportunity to change their mind if they wish and send the money back to the lender within two weeks without being charged. If they are happy to proceed, they can always forward the funds onto the main borrower.

Thinks to consider before agreeing to a guarantor 

Being someone’s guarantor is a big responsibility and there are several things to consider:

Do you trust the main borrower? 

Have you lent them money before? As a guarantor, you need to be confident that the person that has applied and named you as their guarantor is likely to repay. You need to think about how long you have known them and get an indication of their financial situation so that you are eventually not required to repay the entire loan for them.

Purpose of the loan 

It is worth discussing the purpose of the loan with the main borrower. You want the applicant to be using their guarantor loan for a genuine purpose such as an emergency and not for something material like a luxury car or holiday. If the borrower has applied for the loan to rebuild their credit rating, this could give you more confidence that they are going to repay their loan on time.

How likely is it that you are going to repay? 

As a guarantor, you need to consider the likelihood that the main borrower will keep up with repayments. If not, you need to have some disposable income available to repay the loan on their behalf. If you have not put some money aside in case you have to pay, the amount due could increase and potentially damage your credit score.

Is a guarantor loan the best thing for the borrower? 

You need to consider whether this type of loan is the best option for the borrower. Failing to repay can put strain on a relationship and cause financial consequences for both parties.

Depending on the purpose of their loan, there could be better alternatives to raise finance such as borrowing from a credit union, which allows you to borrow a few hundred pounds with very low interest rates. Other options include saving up or selling personal items to raise the money they need. 

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