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Acting as a guarantor

For a young adult with no credit history, getting a loan or mortgage can be difficult.

Landlords may be reluctant to let out a rental property if you don’t have a credit file. Late or missed payments for mobile phones or credit cards may also put off lenders.

One solution is to find someone to act as a guarantor and take on the financial risk of a loan or rental agreement.

There are many legal considerations to think about before agreeing to become a guarantor.

What is a guarantor loan?

A guarantor loan is an unsecured loan with a third party guarantor. The interest rates are usually higher and these loans are aimed at people with a poor credit history or uncertain income, for example self-employed people or those working on zero hours contracts.

As the loan payments are guaranteed by someone else, the debt is similar to a joint debt where both people are responsible for paying it back if one person can’t. Review the legal considerations before agreeing to become a guarantor.

Who could be a guarantor?

Borrowers must be over 18 with a UK bank account to take out a guarantor loan or mortgage. The guarantor must usually be at least 21 and under 75 years old.

To be accepted as a guarantor, you should have a reasonably good credit history and be up to date with your credit commitments. It helps if you are a homeowner who can demonstrate you can afford any repayments.

Who can you be a guarantor for?

If you meet the criteria and are not financially linked to the borrower, you can usually act as a guarantor for anyone. You can’t act as a guarantor for a spouse, civil partner, business partner or anyone you share a bank account with.

What to think about before you agree to be a guarantor

Consider whether you can take legal responsibility for rent, loan repayments or property damage not covered by the deposit, if the borrower fails to do so.

If the person whose loan you’re guaranteeing doesn’t meet their responsibilities, you could be named in resulting legal proceedings. This may affect your future credit score, making it difficult for you to obtain finance.

If you act as a guarantor, your legal responsibility will continue for the tenancy period or loan agreement term. If things go wrong, it could damage a strong relationship.

Signing the agreement form

Before signing, make sure you receive a copy of the tenancy or loan agreement form and both parties understand any obligations or requirements. This will help prevent any nasty surprises later.

Find out more from the Money Advice Service about legal and financial responsibilities when renting.