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Guarantor loans from a guarantor’s perspective : Guarantor FAQs, answered. When you’ve been asked to be somebody’s guarantor — or you’re considering helping a friend or loved one borrow money by being a guarantor — it’s not uncommon to have a lot of questions.
- Will being a guarantor affect my credit rating?
- Does being a guarantor affect me getting a mortgage?
- Will I qualify as a guarantor? If not, who can be a guarantor for a loan?
And although we talk about guarantor loans a lot, it’s usually from the perspective of the borrower, so this week we thought we’d shake things up and look at guarantor loans from a guarantor’s perspective. But rather than going through the whole process from start to end again or breaking down the tricky terminology, we’re going to take the time to answer all the common questions that guarantors (and potential guarantors) have running through their heads.
Guarantor loans from a guarantor’s perspective: frequently asked questions
Why would somebody need me to be a guarantor?
There’s not really a hard-and-fast rule why people need a guarantor for their loans, but usually, it’s one of the following:
- They’ve got a poor credit score that means they don’t qualify for an unsecured loan (or an affordable unsecured loan, at least)
- They have a low salary
- They’ve got no credit history at all
Having you as a guarantor makes them a safer bet to the lender as the repayments are guaranteed, if the borrower can’t make the repayments.
Who can be a guarantor for a loan? Will I qualify as a guarantor?
OK, this question isn’t technically limited to looking at guarantor loans from a guarantor’s perspective, but it definitely helps both parties to know whether they’re a good fit before the application process even begins.
At Bamboo, we accept guarantors that are: willing to accept the repayment of a loan agreement if the borrower cannot, is over 21, employed and able to afford the monthly repayments. On top of that, we also run a credit and affordability check to make sure they’re a suitable guarantor.
Although not a deal-breaker, you are more likely to be a suitable guarantor is if you own your own home. But remember, guarantors don’t always have to be homeowners.
Can I be a guarantor with bad credit?
Unfortunately, guarantors with bad credit aren’t very likely to be accepted as guarantors as lenders are looking for somebody to minimise the risk of lending the money in the first place.
What’s involved in being a guarantor?
Looking at guarantor loans from a guarantor’s perspective, the whole process is quite straightforward: you agree to pay the repayments should the person you’re guaranteeing fail to make their payments. But there’s more to it than that.
Before you agree to being a guarantor, it’s a good idea to consider why the person needs you to be their guarantor in the first place; is it because they’ve got in a spot of trouble and need a hand, because they don’t have credit history and need to get off the ground, or because they have a pattern of mismanaging their money?
Before you agree to being a guarantor, we always advise that think carefully about whether the borrower will be able to comfortably afford to repay the loan. Also consider how likely it is that you will become liable for the repayments. Being a guarantor is a great way to help loved ones borrow money, but it can also end up with you having to pay money out of your own pocket, so it certainly shouldn’t be rushed into.
What should I consider before becoming a guarantor?
This is a great question. Before you agree to be a guarantor, you should ask yourself:
- Why do they need me to be their guarantor? Do they have a bad credit history, or no credit history at all? Are they likely to be able to afford the repayments?
- Are they responsible? Do you trust them?
- Do they need the loan or is it for something that they could save up for instead?
- Can you afford the repayments if they can’t keep up with them? Would you want to?
- Would making payments on their behalf jeopardise or damage your relationship with them? Are you willing to risk that?
Remember, despite the fact that 80% of guarantors never pay a penny, being a guarantor is a serious decision because you’ll be putting your money, your credit score and your relationship on the line.
Will being a guarantor affect my credit score?
In most cases, being a guarantor shouldn’t affect your credit score. However, if you and the person borrowing the money should let the loan fall into default, then this will be added to your credit report and affect your credit score.
Will being a guarantor affect me getting a mortgage?
Although being a guarantor doesn’t (in most cases) affect your credit rating, it can affect mortgage applications. That’s because mortgage lenders look at your income and outgoings (including debt) under a microscope and the potential need to pay off the guarantor loan debt can have a negative effect on your affordability calculations. This, in turn affect your ability to get a mortgage.
What’s at risk if I become a guarantor?
Being a guarantor can cost you money if the borrower can’t keep up with the repayments. In the very worst cases, you risk damaging your credit score and even having your home (or possessions) repossessed.
Can I stop being a guarantor for a loan?
We sometimes get people asking us how to stop being a guarantor and we have to give them the bad news: once you’ve signed a loan agreement and the loan has been paid out, you can’t get out of being a guarantor. As much as we’d like to help you out, everything about the loan we’ve agreed with the borrower was dependent on your guarantee. Without your guarantee, we wouldn’t have been able to lend them the money, which means that we’re not able to take you off the loan agreement. That’s why it’s important to carefully consider guarantor loans from a guarantor’s perspective before you sign the document.
If you’d like to know more about guarantor loans from a guarantor’s perspective, make sure you check out the Guarantor Loans section of our blog — there’s lots of advice on there around every aspect of a guarantor loan, from customer stories to what’s involved with guaranteeing a loan.
- Author The Bamboo Team
- Posted 31 October 2018