A combination of higher property prices and higher rent has made it a lot harder for the younger generation and first-time buyers to save money for a deposit and then secure a mortgage product. However, one increasingly popular option for these potential buyers is to use a guarantor to secure a loan. There are both good and bad things to consider before taking out a guarantor loan as a borrower or deciding to become a guarantor yourself. A guarantor basically means that someone else will financially vouch for the borrower, therefore providing prospective lenders with the extra security. If you are thinking about becoming a borrower yourself, then it really isn’t just a case of trusting the borrower. You are promising to take over any repayments should the borrower not being able to make them themselves.
What Is A Guarantor?
A guarantor is somebody who takes responsibility for credit on behalf of a borrower. To put it simply, the guarantor takes responsibility for the loan repayments in the event that the borrower cannot afford it themselves. If the borrower makes all the repayments of the loan on time and without any issues, then the guarantor will not have to take any financial action. There are a myriad of different reasons why somebody might need a guarantor, and they can be used to secure many different types of guarantor loans. Maybe you are a student looking to move home or looking to rent a property for the very first time, in these cases you might be asked to provide a guarantor to secure the loan. Landlords like to be certain that they will receive their rent on time, and with students that are known to move properties on a regular basis, insisting on a guarantor is one of the best ways of ensuring security.
If somebody has a bad credit score, then they might struggle to obtain credit because lenders are extremely wary about defaults and missed payments. However, some lenders will lend people the money they have applied for if they have a guarantor who has a good credit score themselves.
Who Can Be A Guarantor?
Becoming a guarantor for somebody is not a decision that should not be taken lightly. So, normally a guarantor will be a close friend or a family where there is a strong relationship between the guarantor and the borrower. Legally anybody can become a guarantor, but they do need to be at 21 years old. However, there are some technical requirements to be aware of when it comes to becoming a guarantor, and in the UK, lenders look at the specifics. To become a guarantor, you must be a resident in the United Kingdom so that a lender can take you to court if you don’t make the repayments on behalf of the borrower and you ideally need to own your property. You also need to demonstrate that you have a good credit history and the ability to make credit repayments on time.
The Responsibilities of Guarantors
Guarantors are responsible for paying the debt of a borrow should they not be able to make the repayments themselves. Once a guarantor agreement has been agreed and signed, it is enforced until the end of the repayment term. If you are a guarantor, then this agreement will only ever show up on your credit history if you missed a repayment or default. However, one thing to be aware of is that you should always read the small print and specific terms and conditions as guarantor agreements can differ between the many different lenders that are out there in the marketplace.
If the borrower misses one of their payment dates, you as the guarantor and the borrower will be notified as soon as the lender acknowledges the missed payment. They will work directly with the borrower to give them the opportunity to bring their credit account back up-to-date. However, if they are unable to contact the borrower or come to some sort of financial resolution, they will contact you as the guarantor. From there, you will be required to make the repayment(s) on behalf of the borrower, so their account is up to date.