A guarantor is an integral part of a loan process. Signing to become someone’s guarantor comes with a lot of responsibility and risk factors.
You must have heard about being a guarantor when someone borrows a loan for themselves. It is a huge responsibility and something that can give you a lot of stress. The loan guarantor has a pretty serious role, and in case the loan borrower doesn’t repay the loan, it comes to you who have to repay his debt. If you are unable to meet the consequences, you might damage your credit score, leading to bigger problems.
What is the requirement for a guarantor?
For being a guarantor, you need to fulfil basic requirements. You must be a UK resident and must be aged between 21 years and 75 years. You should have a good credit history. You should have also had a bank account in the UK and a debit card. You would have to prove your income which must not be less than 400 pounds per month. It would help if you were not dependent on the borrower. Generally, a homeowner guarantor is preferable toa non-homeowner guarantor.
Why you should consider helping someone by being a guarantor?
Many banks and loan lenders prefer to give funds to only those who have a guarantor with them. You can become someone’s guarantor to help them out, such as your child who doesn’t have a financial history. It is an option to provide support for your family or friends. It is also an opportunity to help your near or dear one to re-establish someone.
In what cases a borrower might need a guarantor?
If the borrower has no credit history or bad credit, it can be challenging to get a loan without a guarantor. If the borrower has a low income or he/she already has so much debt then also he/she might need a guarantor.
What should you know before signing up?
Before deciding to become someone’s guarantor, you need to make sure that the applicant can afford that much amount for the loan. Being a guarantor doesn’t mean that you have to pay every instalment for them. Make it clear that one should not apply for an amount that can make problems financially in the future.
You are entitled to ask questions. It would help if you asked questions to someone who wants to represent you as a guarantor. Know how much amount they are borrowing and what the need to borrow that money is. Is it required or something senseless?
The next thing that you should think about is your financial capabilities. Can you afford to become someone’s guarantor and repay their debts in case they can’t?
What if the borrower becomes a defaulter?
In case the borrower fails to pay the monthly instalments, the lender will first contact you to encourage them to make the payment. If they fail to do so, you might have to take over the payment of interest and capital. A lender can also take action for missing the payment. But most of the time, the lender generally sets up the guarantee.
What if you want to back out as a guarantor?
If you have already signed the guarantee, you will have to remain a guarantor until the loan is repaid. But if you haven’t signed anything then yes you can back out from being a guarantor. It is imperative to read the agreement before signing the guarantee. Ask yourself a few questions. Can you repay the loan yourself in case of a default? Do you agree with all the terms and conditions? Are you aware of the risk of credit score in case you need to repay the loan? What will happen if you cannot repay the loan as a guarantor? Do you know the borrower of the loan for whom you are becoming a guarantor?
If you have one per cent doubt then avoid becoming a guarantor for anyone that might cause trouble for you in the future. Make sure the borrower takes loans from a trusted lender in the UK. Many lenders provide easy loans to people without any guarantor and bad credit.
The application process for a guarantor
The application process is straightforward and online. The lender will contact you once the application process of the borrower is completed. You will be needed to sign an agreement along with the applicant for the loan. You would have to submit identity proof such as a passport copy or recent bank statement copies. In case the applicant missed the payment, the direct debit will be used to collect money from you.