Tenant Guarantor Loans are where the guarantor selected by the borrower is a tenant and not a homeowner. When you apply for a guarantor loan, you are required to have an extra person involved in the agreement and this person will cover the cost of the loan if the main borrower defaults. Guarantor loans for tenants means that the guarantor you have selected is living at home, shared living accommodation or renting a property.
Customers can apply to borrow up to £10,000 repaid over 12 to 60 months in equal monthly instalments. Simply click on the lender of your choice and you will be taken through directly to their website where you can apply. Your loan is subject to status and affordability checks and successful applicants can receive funding within 24 to 48 hours of applying.
What Checks Does The Tenant Guarantor Go Through?
When you apply with one of our lenders, you will be required to provide some basic details about your guarantor. The lender will carry out a credit check using a credit reference agency and this will give an insight into how well they have paid other kinds of loans in the past and whether they have any credit outstanding.
Affordability checks may be carried out to confirm the guarantor’s employment, monthly take-home and determine how much they can afford to borrow. For instance, if the lender offers too much, it will be too hard for the borrower and guarantor to repay – so having affordability measures in place is crucial. The lender may request a copy of a bank statement or pay-slip as proof of this.
It is always common practice for the lender to speak to the guarantor over the phone before approval. It is essential for the guarantor to understand the responsibilities they have and how they are required to repay the loan if the main borrower cannot keep up with repayments or cannot be contacted.
Why Do Lenders Typically Prefer Non-Tenants?
When the lender is processing a loan application, they are looking very closely at the guarantor’s information because they want to have security that they will still recover their costs if the main borrower cannot repay their loan.
The majority of guarantor lenders prefer the guarantor to be a homeowner because it suggests that they have already demonstrated a healthy income, employment and credit history in order to be approved for a mortgage.
Also, as a homeowner that owns a property, you are probably more used to making regular monthly repayments which mirrors the collections of guarantor loans. If you have a property in the UK, you are less likely to disappear to avoid repayment and you are easier to get in touch with by post or in person. There is also the case that someone who owns a home should be able to raise finance if they ever need to help repay a guarantor loan and this can be achieved by renting out a room, selling household items or getting a second or third mortgage.
For the lender, there are more risk with a tenant guarantor loan because the person that guarantees is living in rented accommodation and can potentially go missing or move with little notice. The chances of a tenant moving house in the next 5 years could be quite high and there are probably unlikely to tell their friend’s lender about this. Due to the increase risk, the rates charged for this product tend to be higher, around 59.9% APR compared to the regular homeowner product of 39.9% to 49.9%. Plus, the amount you can borrow is slightly less, with a maximum of around £6,000 compared to around £10,000.
But Tenants Can Be Great Too!
But just because the guarantor you have selected is a tenant, doesn’t mean you can’t be approved. There are only a few close people who we trust to be our guarantors, such as our parents or close circle of friends so why can’t your guarantor be a tenant? Fortunately, the lenders featured on this page are very used to dealing with tenant guarantors and are happy to consider your application.
There is also the argument that homeowners can also be behind on their mortgage repayments and suffering debt – so being a homeowner does not guarantee your approval. Alternatively, a tenant could have a great income and employment history, backed up with a great credit score but has simply not needed to get a mortgage or finds it more affordable to be a tenant.
What Characteristics Should a Tenant Guarantor Have?
Although your guarantor is not a homeowner, they can still be a great person to have involved in the transaction if they have a good credit history. Having a good track record when it comes to paying loans and credit card bills will give the lender real confidence when assessing the loan application.
- Good credit history
- Strong income and employment – have been in their job a few years
- Trustworthy and reliable
- No history of CCJs and IVA’s
- Easily contactable
Furthermore, a good guarantor does not have a history of financial problems such as bankruptcy, county court judgments or individual voluntary arrangements. The lenders ideally want someone with a good and steady financial history.
Other factors include having long term and stable employment because this suggests that the guarantor will likely be able to afford repayments in the future and be less likely to require income support.
You want someone who is trustworthy and reliable because being a guarantor is quite a responsibility. They need to be able to speak to a lender and sign the loan agreement prior to funding. Plus, when it comes to the drawdown, the monies usually go to the guarantor first who has the opportunity to pass this onto the main beneficiary or send it back to the lender within two weeks without fees. This is known as the ‘cooling off period.’
Can I Ever Change My Guarantor?
Yes, most lenders appreciate that the first guarantor you choose may not be the right one straight away, so most will give you the option to try at least 3 guarantors for your application.
If you only have one guarantor but the application is not successful, your account will remain open for several weeks or months, giving you the option to find a new one. Once it has expired, you will need to resubmit the application.
Changing your guarantor once your loan has been funded can be quite tricky. After all, a tenant guarantor loan can last for up to 5 years so your extra person may decide that they no longer want to be involved or perhaps their financial position has drastically changed. Unfortunately, changing your guarantor is not that simple since a lot of the credit and affordability calculators made during the application process were based on your original person. Hence, changing it may influence the amount you could have borrowed, the rate you were charged and how long for. There are some extreme cases where this can change such as the person being deceased and then their spouse becomes the next of kin or the lender is able to claim from their estate. For more information, read our guide on can I stop being someone’s guarantor.