How do Guarantor loans work?

Your questions answered #1

In this series of blogs, we look at the most frequently asked questions. Here at 1Plus1 guarantor loans we want you to fully understand how a guarantor loan works. Key is that 1Plus1 guarantor loans will only lend to you if both you and your guarantor meet our creditworthiness and affordability criteria.

Guarantor loans are one way to help someone borrow money if they’re having difficulty getting approved by lenders. As example, this may be a young person with a limited credit history, or someone with a bad credit history. There are risks involved for both borrower and guarantor, so both of you should only go into a guarantor loan agreement armed with all the facts.

1. What does being a guarantor mean?

Being a guarantor involves helping another person borrow money, such as a loan or mortgage. As a guarantor, you “guarantee” that person’s loan or mortgage by agreeing to repay the loan if don’t or can’t afford to. It’s best to only agree to be a guarantor for someone you know well. Parents will often act as guarantors for their children, to help them take a first loan or mortgage.

2. Can anyone be a guarantor?

Almost anyone can be a guarantor. It’s usually a parent, spouse, sister, brother, uncle or aunt, friend, or even a grandparent. However, you should only be a guarantor for someone you trust and are willing and able to cover the repayments for.

You’ll need to be over 18 or over 21 if you aren’t a homeowner and meet 1Plus1’s creditworthiness and affordability criteria.

If you’re thinking of asking someone to be a guarantor, or a family member or friend has approached you, you must be aware of the possible financial risks.

3. Why would someone need me to be a guarantor?

It’s most likely one of the reasons below:

• They have no credit history, maybe a young person or new to the country.
• They’ve just started work or moved jobs
• They don’t earn a lot
• They have a low credit score

Whatever the reason, you need to be close enough to the person to discuss their finances openly.

Before saying yes, you need to ask yourself:

• Why do they need me to be their guarantor? Because they have a bad credit history? Can they afford the repayments?
• Are they responsible?
• Do they need the loan or could they save up for it instead?
• Can you afford to pay back the loan if they can’t or won’t?
• If they don’t make the repayments will it affect your relationship?