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What Is a Guarantor – and What Do They Do

What Is a Guarantor – and What Do They Do

What Is a Guarantor – and What Do They Do?  

When making some of the biggest and most important financial commitments in our lives, many of us are asked to supply details for a guarantor. Generally speaking, we all know that that means someone to guarantee that we are eligible for the commitment in question, but what exactly does that mean, and what do they actually have to do?  

Having an adequate and reliable guarantor is essential in any contract where a lender needs extra confidence in your application. It’s not always casting aspersions on your ability to repay, but rather, it’s an extra safety net for you and your lender. 

However, only a few people in your life may be regarded as adequate guarantors. Why is this? Let’s dive in and take a glimpse at what this all means for your loan applications and other credit surveys. 

a lady on the phone to her guarantor

What Is a Guarantor?

Simply put, a guarantor is someone you name who can provide payments for you in the event that you cannot. Guarantors are often required when taking out unsecured loans, mortgages, or rental agreements. Essentially, the guarantor is a third party in the contract who the loaner, bank, or property owner can contact if you cannot make your payments (be it loan payments, rent, etc.).  

But, should the loaners or property owners have to contact the guarantors, what exactly are they expected to do?  

What Do Guarantors Do?

If the bank, lender, or property owner has to reach out to the guarantor, it will be to receive the payment(s) that you have failed to make. For instance, if you have arranged a direct debit agreement and you don’t have sufficient funds, the lender will seek out the guarantor to make up the difference, and will be legally required to pay what you owe on your behalf.  

Reaching out to a guarantor is usually a worst-case scenario for lenders and, in most cases, doesn’t happen. If you don’t make a scheduled payment, then companies or lenders in question will reach out to you first. They will try to get their owed money from you and will only reach out to the guarantor if the amount due is outstanding and if they have tried and failed to reach you in multiple ways.  

However, if it does reach the point where they cannot get in contact with you and you have still not managed or attempted to make your payments, then they will have few options remaining. 

If your guarantor does not make the payments on your behalf, then the lender or property owner could take them to court for the amount due. As they will have agreed to take on those debts, should they occur, they will become responsible for them in your absence. This is why your guarantor must understand the full legal ramifications should you default on your arrangements. 

When Could You Need a Guarantor?

As mentioned, guarantors are often required when taking out personal loans, mortgages and even more frequently when it comes to rental agreements.  

Essentially, lenders in question will need proof that, should you not be able to make your payments, they will still be able to get what they are due. This can be the case even with payday loans and properties – it’s all about confidence. 

Companies and lenders will perform a credit check on you before making any final agreement. When guarantors are necessary, they will also perform credit checks on them, too. This is to ensure that, again, should you not be able to pay them what you owe, the people you have chosen as your guarantors can.  

Sadly, this means that selecting a suitable guarantor for you isn’t always just a case of choosing someone you love or trust. They will have to meet certain specific criteria, too.  

Who Can Be a Guarantor?

First of all, the potential guarantor in question must be at least 18 years old. They must be old enough to have an adequate (current) bank account, can pass a credit check, and so on.  

However, to have a good enough credit score and, more importantly, a credit history, the guarantor is usually expected to be much older than 18. They will need proof of an adequate income that can provide for the payments in question, should their contribution be necessary.  

The guarantor will have to live in the UK and will need a separate bank account from the borrower or renter.  

a girl checking how being a guarantor impacts a credit score

Does Being a Guarantor Affect Your Credit Score?

Unfortunately, yes – and there are two ways in which being a guarantor can affect your credit score.  

The first way your credit score may be affected is during the initial credit check, which will show on file, recorded for when you make any credit applications of your own in future. 

The second way is if you indeed need to make the payments on behalf of your guaranteed party. If the first party defaults, the guarantor not only loses money, but credit health, too. That is why it is vital to consider the commitment you are making before you do it.  

If you’ve been approached to take on the role of a guarantor, take the time with the borrower in question to ensure that they have a steady plan for their payments and even savings should any issues occur. They need to be responsible enough to communicate with the lenders in question, too, so that you are less likely to have to intervene.  

However, should your contribution be required, you must ensure that you have the funds to make the payments without endangering your own accounts and financial responsibilities. Otherwise, you’re legally impacted, too. 

A Conclusion on Guarantors

Not all loan agreements need guarantors – but in the event that a lender needs additional security or confidence that they will receive money due, it’s a good idea to be prepared for this part of the process to arise. 

If you’re approached to be a guarantor, always read terms and conditions carefully – and ensure whoever has approached you understands the full ramifications. Otherwise, you’re both in trouble! 

Are you looking to apply now for a loan with a guarantor? If so, LoanBird has a fair few lenders that specifically offer guarantor loans. Use our quick & free eligibility check service to see if you’ll be accepted.

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