Being asked to act as a loan guarantor is a big decision. Before you agree, it is worth understanding exactly what you are signing up for. The commitment goes well beyond a character reference.
Risks and warnings
Guarantor loans carry real financial risk for the guarantor, not just the borrower. Before reading any further, consider these points:
- You are liable for the full debt. If the borrower stops paying, the lender can come to you for every penny owed, including any interest or charges that have built up.
- Your credit file can be affected. If the borrower misses payments and the lender pursues you, that can appear on your credit file and stay there for up to six years.
- Withdrawing is not straightforward. Once you have signed a guarantor agreement, removing yourself usually requires the lender's consent. That consent may be withheld until the loan is fully repaid or another guarantor is found.
If you are already worried about debt, talking to a free advice service is a sensible first step. You can contact:
- StepChange Debt Charity: 0800 138 1111 (free, 24/7 online)
- National Debtline: 0808 808 4000
- MoneyHelper: 0800 138 7777
- Citizens Advice: search for your local bureau at citizensadvice.org.uk
What does a guarantor actually agree to?
A guarantor is someone who agrees to repay a loan if the borrower cannot. The lender may ask for a guarantor when the borrower has a thin or poor credit history and cannot qualify for a standard loan on their own.
Signing the agreement makes you legally responsible for the debt. This is not an informal arrangement.
Why it matters who the borrower is
Your relationship with the borrower matters. In most cases, guarantors are family members or close friends. The important bit is that your financial exposure depends entirely on the borrower's behaviour.
Ask yourself: if this person struggled financially, would you be able to cover their monthly repayments as well as your own outgoings? The answer to that question is worth sitting with honestly.
How it can affect your own credit file
When you become a guarantor, a hard credit search may be recorded on your credit file. If the borrower later misses payments and the lender calls on the guarantee, that can also appear on your record.
A default linked to a guarantor agreement can affect your own ability to borrow, to rent, or in some cases to pass employment credit checks.
What happens if you cannot afford to repay either?
Lenders will typically carry out an affordability assessment on the guarantor as well as the borrower. Even so, circumstances change.
Before signing, it can help to work through a realistic budget. The affordability checklist on this site can give you a starting point. Think about what your finances would look like if the borrower stopped paying tomorrow.
How long the agreement lasts
A guarantor agreement runs for the full term of the loan. For some personal loans, that can be two to five years or longer. Your liability does not reduce as repayments are made unless the agreement specifically says it does.
Checking this before deciding is sensible. Ask the lender for the full terms in writing and read them carefully.
Whether there are ways to exit the agreement
In most cases, you cannot simply withdraw once you have agreed. Some lenders do allow a guarantor to be released if the borrower has demonstrated a consistent repayment record, but this is at the lender's discretion.
If you are considering becoming a guarantor, asking the lender upfront about exit conditions is a reasonable question before you commit.
What to read next
For a fuller explanation of how these loans are structured, the guarantor loans guide covers the key mechanics. The personal loans guide gives useful context on the wider borrowing picture.
If interest and total cost are part of your thinking, the loan interest rates guide explains how to compare the real cost of a loan beyond the headline rate.
Sources
- MoneyHelper: guarantor information (moneyhelper.org.uk)
- Financial Conduct Authority consumer guidance (fca.org.uk/consumers)
- Citizens Advice: guarantor loans (citizensadvice.org.uk)
- StepChange Debt Charity (stepchange.org)
- National Debtline (nationaldebtline.org)