As part of their process, guarantor loan lenders will focus on both the applicant and guarantor; this is because although it is primarily the applicant’s responsibility to pay the loan, if they ever fail to do so- the onus is on the guarantor.
This means that the lender will carry out a number of checks on the applicant in order to prove that they will be able to manage the repayments once the loan has been approved. Naturally, the applicant’s credit history doesn’t need to be good, in fact it can be quite poor, however most lenders will be unable to lend to those who have been recently declared bankrupt, in a CCJ or an IVA.
Checks will also be carried out on the guarantor; unlike the applicant the guarantor must have a good credit history. Sufficient evidence will be required that the guarantor could afford the repayments if they were ever required to do so, and of course the guarantor must also be a homeowner.
However, just because a lender would deem you to be a suitable guarantor, there are a number of questions you should ask yourself prior to signing any agreements;
1. Do you trust the applicant?
The first thing you should ask yourself is; do I trust the applicant to meet the repayments of the loan? If you are at all hesitant when answering this question then I encourage you to sit down with the applicant and have a chat about their finances. If you are happy with their ability to meet the scheduled repayments, then move onto the next question.
2. Do you feel you are financially ready to be a guarantor?
As I explained above, lenders will assess your income and outgoings in order to evaluate the affordability of the loan. Evidently, we can only assess the affordability based on your past; if you know of any future expenses (i.e. home improvements, a new car etc.) that may affect your ability to repay the loan if needed, then I encourage you to sit down, and calculate how much this is going to cost you and how it would affect your repayment ability prior to saying yes. If you are fully happy that you are financially ready to be a guarantor, then continue.
3. Are you happy to pay if the borrower failed to do so
As a guarantor is it your responsibility to make payment on behalf of the applicant if they ever fail to do so. If you are unhappy or unable to do this having signed the agreement, then this will be reported to Credit Reference Agencies as a missed payment which will lower your credit score. Prior to approving the loan lenders are likely to carry out a call with the prospective guarantor, ensuring that they are fully happy and comfortable with the agreement that they are signing.
These are the three main questions you should ask yourself prior to becoming a guarantor. If you feel comfortable that then you’d answer each of these with ‘yes’, then I’m confident you’d be a suitable guarantor.
It must be said that; being a guarantor in itself will not affect your credit history. The credit search that we carry out on you however will be a ‘hard search’ and therefore will be visible to future providers.