Has a friend or family member recently asked you to be a guarantor for them? Are you wondering what it means and if you should do it or not? Here at YCIS we are here to help explain what it means to be a guarantor and to explain what you may need to consider before agreeing and signing those documents.
What is a Guarantor?
You may initially be wondering, ‘what is a guarantor anyway’? Quite simply, it is someone who agrees to help out another person (usually a friend or family member) by promising to make the repayments on a loan or other credit agreement should the borrower be unable to meet the repayments for any reason. Guarantor loans have become increasingly popular in recent years.
Why Would Someone Want a Guarantor?
Usually, it is more a case of someone needing a guarantor rather than wanting one. Chances are, a lender or credit provider has taken a look at the applicant and decided that they are not willing to risk lending them the money as a sole applicant – as they believe they are unlikely to get it back. This could be because the applicant:
- is young and has no credit history
- has a credit history but heir score is poor
- has a low-income job
But the lender may be willing to provide the loan if they have the additional backing of a guarantor – such that if their fears come to pass and the repayments aren’t made, the guarantor is there to step in and ensure the lender gets their money back.
Should I Agree to Be a Guarantor?
Being a guarantor is a perfectly legitimate thing to do, but you need to think carefully about whether it is something that is right for you. How well do you really know this person and how much do you trust them to repay the loan? There is a reason that they require a guarantor – do they have sufficient finances to meet the repayments? Is the loan for something essential such as a car repair, or is it for something less critical that they may just have to defer – such as a holiday?
Remember, if you have agreed to be a guarantor and the borrower fails to meet the repayments, both of your credit scores could be impacted. You will also be stuck with the bill for repayments.
Also, once the credit agreement is signed, you can’t back out as the loan will have been made on the provision that you have agreed to act as a guarantor. So it is no light thing to agree to become a guarantor and needs to be carefully considered – but equally, your help could give someone a real boost to their finances.