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In financial terms, what does guarantor mean?

In the financial world, specifically, when referring to loans or borrowing, you may hear the phrase ‘guarantor’. This means that someone will or has become involved in the process of someone else’s finances by helping them to obtain credit. A guarantor quite literally ‘guarantees’ that the loan or mortgage will be repaid by promising to pay the debt in full (including any additional contractual costs) if the borrower defaults.

What is a Guarantor loan?

A guarantor loan is provided as a personal loan but requires a second person to guarantee (underwrite) that the debt will be repaid in full. This is usually because the applicant has a poor or a bad credit rating or no or little income. There is less risk to lenders with guarantor loans as there are 2 persons responsible for the repayments typically with the guarantor having a good credit rating, income and assets.

Who can be a guarantor on a loan?

Any creditworthy individual can become a loan guarantor. It is usually someone in your immediate family, but it can be anyone over the age of 18 although some lenders will stipulate an age range of 21-70. A guarantor cannot be your husband/wife or someone that you share a bank account with.

Can anyone offer a guarantor loan?

A guarantor loan is a product offered by many lenders in the UK. Guarantor loans are a common financial product that is trusted but should only be provided by FCA regulated lenders.

What ‘checks’ are carried out on the loan guarantor?

If you were looking to take out a loan (or mortgage) and was considering using a guarantor then typical credit checks would be undertaken. These credit checks are to ensure financial stability and would be the same as if you were taking a loan out personally. The checks will be different for each lender but will make sure the guarantor has an acceptable credit score (past & present), check their employment status, evaluate income and affordability and will possibly analyse their assets (such as the amount of equity held in a property).

Can I guarantee a loan with bad credit?

If you have a bad credit rating or a history of bad credit, it is highly unlikely that a lender will accept you as a guarantor. A low credit score will probably determine you as high risk and will result in lenders refusing to grant the credit facility.

How much can I borrow with a guarantor loan?

There are many Lenders that offer guarantor loan products with each of their products and their acceptance criteria being different. The loan amounts offered range from £100 to £15,000.

How long does the acceptance process take for guarantor loans?

After you and the guarantor have completed the paperwork and submitted the application to the lender then, if all is in order, some companies commit to making the payment within 24hrs.

It is recommended that you conduct as much research as possible into the lenders that provide guarantor loan products to ensure you find the best loan for you. Once you understand your chosen lenders acceptance criteria and have spoken to your guarantor about their obligations then the application process can begin.

What are the risks of being a guarantor for a loan?

There are inherent risks to agreeing to guaranteeing somebody else’s loan. If the loan applicant defaults on their repayments then the lender, within a predefined period of time as determined in the contract, will pursue the guarantor for the outstanding debt. Being a guarantor will be legally binding and the lender will be entitled to the balance of the loan (and any accumulated costs) from the guarantor.

Can I terminate being a guarantor of a loan?

The lenders will not want to remove you from the contract. It is likely that once you have agreed to the terms of the contract, the lenders have conducted their the checks and the money has been paid out that you will be legally responsible for the debt for the duration of the loan term. It is because of the guarantor’s financial status that the loan application would have been accepted. Some companies may allow a transfer of guarantor but that would be dependent on the lender and may incur administrative costs.

Summary

Guarantor loans are provided by FCA regulated lenders. They are financial products that are suited to individuals who have poor credit or low income. A guarantor of this type of loan product ‘guarantees’ that the loan will be paid in full and will be legally responsible for the debt if the borrower defaults in their repayments.

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