Responsibilities of a Guarantor

If you are thinking about becoming a guarantor, or have already signed up to be a guarantor for someone you know, then you’ll need to educate yourself on a number of things connected to being a guarantor for a loan.

If you’re considering being a guarantor for someone then you’ll need to understand who can be a guarantor, whether you can stop being a guarantor and what the process is for guarantors once the decision has been made.

Whether you’re still deciding, or have already confirmed you are a guarantor, you need to understand what the responsibilities of a guarantor are. We’ll be going over a guarantor’s responsibilities in the below article, to make them clear for all guarantors.

What does being a Guarantor involve? 

First up you need to understand what being a guarantor will entail. You’ll be responsible for co-signing the application undergoing a credit check by the lender and receiving the funds on behalf of the borrower. You’ll receive the funds as a security measure.

Generally the main responsibility of a guarantor is to cover any payments that the borrower can’t make to the lender.

You, the guarantor becomes responsible for repayments if:

1. The borrower defaults on repayments

If the borrower fails to make a repayment and defaults, then the guarantor has a financial obligation to make the repayment. We would always advise a borrower to contact the lender in advance if they realise they won’t be able to make a payment, as they may be able to come to an agreement with the lender before the payment is missed.

2. The borrower refuses to pay

If the borrower refuses to pay then it still falls on the guarantor to make the repayments. The agreement that has been co-signed makes it the guarantor’s responsibility to make any missed payment, even if it’s because the borrower can afford to make it and has refused.

3.  The borrower enters a debt management agreement like an IVA

If the borrower fails to make repayments, causing them to enter a debt management agreement like an IVA, or they enter one for another reason, they’ll be protected from the lender and won’t have to make the repayments. It will however fall entirely on you, the guarantor, to make the payments. While the lender can’t chase the borrower, as they’ll be protected by the IVA, they can chase the guarantor and they will likely expect them to make the repayments in full.

Things for a Guarantor to consider

The responsibilities of being a guarantor are not to be taken lightly. As all missed payments, regardless of the circumstance, require the guarantor to pick them up there’s a lot that should be considered before you agree to be someone’s guarantor.

Your relationship with the borrower should be a major consideration. As most guarantors are direct family or close friends with the borrower, it’s worth considering how becoming a guarantor could affect that relationship. If a borrower misses multiple payments and you have to meet significant financial obligations it may cause strain between you and the borrower. Keep this in mind before agreeing to it and understand the situation of the borrower so there are no nasty surprises. Also decide upfront on whether you expect the borrower to pay you back for any payments you must make in their stead, and if they do then how that will be structured.

It’s also worth understanding what the loan is for before you agree to it. Understanding the need for someone’s loan can help you act better as a guarantor and prepare better for what could happen if they miss a payment.

It’s also worth considering your own financial situation. If you default on a payment that the borrower has also defaulted on, then your own credit score will suffer. Your credit score will be linked with that of the borrower for the period of the loan repayments.

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