Risks for the guarantor on a guarantor loan

Being asked to act as a guarantor can feel like a straightforward favour. Before you agree, it is worth understanding exactly what you are signing up for. The risks are real, they are legally binding, and in some cases they can affect your home.

This article is general information about how guarantor loan agreements work in the UK. It is not personal financial or legal advice. If you are facing a specific situation, speaking to a free debt adviser is a useful first step.

What does being a guarantor actually mean?

When you agree to be a guarantor, you are making a legal promise to repay the loan if the borrower cannot or does not. This is not a formality. It is a legally enforceable obligation.

The lender will carry out a credit check on you at the application stage. This is a hard search, which means it leaves a footprint on your credit file regardless of whether the loan goes ahead. The lender is assessing whether you have the means to repay the debt if they need to call on you.

If the borrower misses payments, the lender has the right to contact you and ask you to cover what is owed. In some agreements, the lender can pursue you at the same time as the borrower, or even before pursuing them. The exact terms vary between lenders, so reading the agreement carefully matters.

What are the risks to your credit file?

Your credit file is affected from the moment the application is made. Here is how the impact can build:

At application: A hard search is recorded on your credit file. Multiple hard searches in a short period can affect your credit score.

During the loan: Some lenders link the loan to your credit file throughout its term. If the borrower falls into arrears, those missed payments may be reported against your file as well as theirs.

If the borrower defaults: A default recorded on your credit file stays there for six years. This can affect your ability to get a mortgage, remortgage, take out car finance, or apply for other credit during that time. The borrower's choices directly affect your financial record.

This is one of the more overlooked risks. People often focus on whether they will have to repay the money, but the credit file damage can happen even if you never have to make a single payment yourself.

When can it make things worse: legal action and charging orders

If you are called upon to repay the debt and you cannot, or do not, the lender can take legal action against you. This process typically works as follows:

1. The lender issues a formal demand for repayment.
2. If you do not pay, the lender can apply to the court for a County Court Judgement (CCJ) against you.
3. A CCJ is recorded on your credit file for six years and can affect many areas of your financial life.
4. If the CCJ is not satisfied, the lender can then apply for a charging order against a property you own.

A charging order does not mean you will automatically lose your home. What it does mean is that the debt is secured against the property. When the property is sold, the outstanding debt must be repaid from the proceeds before you receive anything.

Be careful if you are a homeowner considering acting as guarantor on a large loan. The charging order route is a genuine legal possibility, not a remote one.

When it can help: why people still agree to be guarantors

Some people agree to be a guarantor because they want to help someone they care about access credit they could not otherwise get. That is an understandable and sometimes reasonable decision.

It is less risky when:

• You have confidence the borrower can and will repay the loan.
• The loan amount is manageable relative to your own finances.
• You have read the agreement and understand under what circumstances the lender can pursue you.
• You have considered what would happen to your relationship with the borrower if things went wrong.

It is worth being honest with yourself about all four of those points before signing.

What to check before you agree

Before agreeing to be a guarantor, a useful set of questions to ask includes:

About the borrower:

• Why are they unable to get the loan without a guarantor?
• Do they have a history of missed payments or debt problems?
• Have they talked openly with you about their finances?

About the loan:

• What is the total amount repayable, including interest?
• Over what term is the loan running?
• What is the interest rate and what happens to repayments if the borrower misses one?

About your own position:

• Could you afford to repay this loan yourself if called upon?
• Do you own a property that could be subject to a charging order?
• How would your credit file and finances be affected if the worst happened?

About the agreement itself:

• Can the lender pursue you before or at the same time as the borrower?
• Is there any provision for you to be released as guarantor before the loan is repaid?
• What happens if the borrower dies or becomes seriously ill?

You are entitled to take time to read the agreement and, if you are uncertain, to seek independent legal advice before signing.

Relationship risk: what often goes unsaid

Many people who have acted as guarantors and faced problems say the financial damage was compounded by the effect on their relationship with the borrower. If you have to cover payments, or if your credit file is damaged by their missed payments, it is difficult not to feel the strain.

This is not a reason never to agree to be a guarantor. It is a reason to think carefully and to have an open, honest conversation with the borrower about what would happen if things went wrong before you sign anything.

Risks and warnings

Being a guarantor carries significant legal and financial risks. The following is a summary of the key ones:

• Legal liability: You are personally liable for the full outstanding debt if the borrower does not repay.
• Credit file damage: A hard search at application, followed by potential arrears and default markers, can affect your credit file for up to six years.
• County Court Judgement: If you do not repay when called upon, the lender can apply for a CCJ against you.
• Charging order: A lender with a CCJ can apply for a charging order against your property, securing the debt against your home.
• Difficulty of removal: Once signed, most guarantor agreements offer no straightforward route to being released until the loan is fully repaid.

If you are already in this situation and finding it difficult, or if you are under pressure to agree to be a guarantor when you have doubts, free debt and legal advice is available.

Free help is available right now:

• StepChange Debt Charity: 0800 138 1111 (free, confidential debt advice)
• National Debtline: 0808 808 4000 (free advice for people in England, Wales and Scotland)
• MoneyHelper: 0800 138 7777 (free and impartial money guidance, backed by government)
• Citizens Advice: Search for your local branch at citizensadvice.org.uk (free advice on debt, legal rights and consumer issues)

None of these organisations will judge you. They are there to give you information so you can make the best decision for your situation.

Frequently asked questions

Can a lender come after me before they chase the borrower?

It depends on the agreement. Some guarantor loan contracts allow the lender to pursue you at the same time as the borrower, or even first. Read the small print carefully before signing, and ask the lender directly how they handle defaults.

Will being a guarantor affect my credit score?

A hard credit search at application will leave a mark on your credit file. If the borrower misses payments, those missed payments can also be recorded against your file. That could make it harder for you to borrow in future.

Can I be removed as a guarantor once I have signed?

Removal is rarely straightforward. Lenders generally will not release a guarantor until the loan is fully repaid. Some agreements make no provision for early release at all. Checking this before signing is important.

What is a charging order and how does it affect my home?

A charging order is a court order that secures a debt against your property. If a lender obtains a County Court Judgement against you as guarantor and you do not pay, they can apply for a charging order. This does not mean automatic repossession, but the debt must be repaid when the property is sold.

What happens to my credit file if the borrower defaults?

The default can be recorded on your credit file as well as the borrower's. A default stays on a credit file for six years and can affect your ability to get a mortgage, car finance, or other credit during that period.

Where can I get free advice if I am struggling as a guarantor?

StepChange (0800 138 1111), National Debtline (0808 808 4000), MoneyHelper (0800 138 7777), and Citizens Advice all offer free, confidential debt advice. None of them will judge you for asking.

Related reading

For a fuller picture of how guarantor loans work, see our main guide: Guarantor loans.

Sources

• MoneyHelper: guidance on guarantor loans and the obligations of a guarantor
• Citizens Advice: guidance on guarantor agreements, CCJs, and charging orders
• Financial Conduct Authority (FCA): consumer credit regulatory framework for guarantor lending

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