Being a Guarantor

If you are thinking of being a guarantor for a friend or family member’s loan application, there are a number of things you need to take into account.

The First is simply a question of trust. How well do you know you friend or family member? If you know you can trust them to make their repayments, we are happy to provide them the chance to build a credit rating, so hopefully in the future they can borrow without a Guarantor...

It is also important that you are aware of your role in the application process we call it the three R’s:

• Responsibility- If you have signed the agreement to say you will be guarantor; you are legally obliged to make payments on the loan only if and when the borrower fails to do so. Please note: if the borrower never fails to make a payment, as guarantor you will never be contacted by us.

• Risk- Being a guarantor in itself will not affect your credit file, nor will the loan appear on your credit report. Your credit file will only ever be affected if or when prompted to make a payment- you fail to do so.

• Reward- Providing all goes well throughout the term of the loan agreement; you will have helped build or repair the credit rating of your friend or family member. This will hopefully enable them to get a better rate for the next time they need a loan or any type of finance, you may even help them get a foot on the property ladder with a mortgage application.

The second consideration is regarding the lending criteria. If you don’t meet the criteria the application will be declined, before applying have a quick check through the below;

·       Homeowner- We may require you to own your own home, whether paying a mortgage or not.

·       Credit History- It is important that we know you have a good track record with repayments on existing loans, it helps reassure us you can afford your current commitments and are not stretching yourself to repay this loan too. We don’t rely just on computer generated scores; we like to use common sense, so if something doesn’t look right we may contact you.

·       Income- Many mainstream lenders have a set income criteria. We simply require you to be receiving a regular income that is sufficient to afford the monthly repayments alongside your current credit commitments.

·       Age- We just require you to be over the age of 21

·       Relationship with applicant- We may reject an application if you are financially linked with your friend or relative. So if you’re a partner, husband or wife of the applicant we may not be able to accept the application.

·       Active bank account- We need you to have an active bank account because we will be paying the loan into your account to pass across to your friend or family member.

·       Documentation- As part of the guarantor loan process you may be required to submit some supporting documents. One may be a proof of identity; this can be a photocopied passport or driving license. If you are not registered on the electoral role you be asked to submit a utility bill or bank statement as proof of address. Finally you will need to submit proof of income which can be a photocopy of a recent payslip or bank statement.

So, if you think you meet each of these criteria points, the chances are you would make a good guarantor

Summary - while there are some risks involved with being a guarantor, providing the applicant keeps up with the loan repayments, you will never be contacted. Lenders will always make you aware of your responsibilities as part of their process, but it is also important that you and the applicant are regularly in contact and have a good understanding of each other’s role in the application.