What is a loan guarantor?

A loan guarantor is a person that agrees to repay money that is owed to the bank under a loan, if for some reason the borrower doesn’t.

To become a loan guarantor, you must sign a guarantee – a legal document where you promise to do so. It is fairly common to become a guarantor for your spouse’s or children’s loan.

You should not make this decision lightly, which is why you are required to get a legal advice from a solicitor and also financial advice from your accountant.

What are the risks of becoming a guarantor?

You may have to pay back the entire debt

If the borrower can’t make the loan repayments, you will have to pay back the entire loan amount plus interest yourself. Depending on your financial situation, it may cost you your home.

It could stop you getting a loan

If you apply for a loan in the future, you’ll have to tell your lender if you’re guarantor on any other loans. They might decide not to lend to you, even if the loan that you guaranteed is being repaid.

You could get a bad credit report

If either you or the borrower can’t pay back the guaranteed loan, it’s listed as a default on your credit report. This makes it harder for you to borrow in the future.

It could damage your relationship

If you’re a guarantor for a friend or family member who can’t pay back the loan, it could affect your relationship.

If you don’t feel comfortable guaranteeing a loan, there may be other ways to help. For example, you might be able to contribute some money towards a house deposit.

Talk to us before becoming loan guarantor

We can explain the relevant information to you!

• Are you prepared to repay the loan if the borrower doesn’t?
• Can you afford to repay the loan yourself, should it come to it?
• How will it affect your borrowing ability in the future?