Everything About Guarantor and If You Need One
What is a guarantor, and what is his/her role? If you are someone who is struggling with these queries, don’t worry. You have just landed on the right article. In this article, I will be helping you with the ins and out’s of the term “Guarantor” and why you need one in some situations.
You might have heard this term often if you get involved in financial markets and deal with money lending and borrowing. But if you are not so well versed with financial terms and have heard this word for the first time, I will briefly define what it means so that you can read the article with a clear perception.
So sit back and go through the article, and by the end, I am sure you will have good knowledge about guarantors and other aspects linked with it.
What is a Guarantor?
A guarantor is a person who takes responsibility or guarantees a person who is taking credit or loan. The role of a guarantor is being a person on behalf of whom the loan amount is sanctioned to the person you are being a guarantor. If the person fails to repay the debt, then you will be responsible for the repayment, and thus the creditor has an added assurance of another person.
It is always wise to be a guarantor to a person you know pretty well personally and know that he/she will be able to repay the debt. Being a guarantor is recorded legally, and thus you should consider all the aspects of risks involved before being a guarantor to your friend or family.
Who can be a Guarantor?
Anyone willing can be a guarantor. The common scenario of this kind of legal bounding is often found between spouse and parents, provided they have separate bank accounts. Friends can also be a guarantor to someone, provided he/she should be willing and have a good bond of trust with you.
The legal criteria that are needed to be fulfilled before you act as a guarantor to anyone are that you should have a good credit history, have financial stability and be at least 21 years old or older. If you own his/her own house, it helps in the process of being a guarantor as it adds more credibility and assures the lender that if not with money, you have assets that can cover the loan taken in the worst-case scenario.
When does someone need a guarantor?
The most common situation when one signs for a guarantor is when someone is looking for a new rental apartment and has not rented apartments previously. Thus, the landlord asks for a guarantor so that he can sleep with peace of mind that his rent will be paid, if not by the person renting, then by the third-party guarantor.
However, there are various reasons why a landlord might ask you to have a guarantor. Below are some situations when you might be asked for a guarantor by a landlord.
- An unusual source of income.
- Low credit score.
- International student or someone who is not a resident of the country.
- Lack of funds and no consistent employment.
- You have no credit history.
- Low salary.
- I have just started a new job.
What are the risks involved in being a guarantor?
If you are choosing to be a guarantor to someone, there are some aspects you should consider before going all in. One of which is the risk factors; you might lose money and even your assets if the loan or the credit is not paid. In the case of an apartment lease guarantor, you might have had to pay rent and any damage to the apartment.
If the borrower fails to repay, you are legally bound to pay his payments, and if you cannot pay, then the officials might confiscate your assets like your house. The risk involved is quite high, but if you know the person. You know he/she will be able to pay the amount of the rent within time and just needs you to be a guarantor for the sake, he/she has no credit history or is new to the city/country then you can always consider helping.
When should you consider having a guarantor?
If you have finalized an apartment for yourself and the leasing agreement mentions you require a guarantor or if you are someone new in the country and the landlord needs third-party security regarding the rent. Then you must consider having a guarantor, choose someone whom you have known for a long time and who is willing to help you no matter the situation.
If you don’t find anyone helping you, don’t worry; there are other options as well!
Companies such as The Guarantors act as a 3rd party guarantors and help you in situations like these. They analyse your background and your ability to pay them back, creating a personal risk profile for you. You will have to provide them with all the income documentation and have a good credit score.
What is a Guarantor Check: Requirements of a Guarantor?
It is a series of checks that any lender does before approving a guarantor. It is done to check whether the guarantor has the necessary credit history and will be able to repay the debt on time.
Frequently Asked Questions
1. What’s the meaning of a guarantor?
When you rent a place to live, you might need a guarantor to help you with your payment. A guarantor is someone who will pay your rent if you fail to do so. If you don’t pay your landlord, they can ask your guarantor to do so.
2. What happens if a guarantor Cannot pay?
When a guarantor fails to make payments, he or she may be subject to legal action. “If a lender files a recovery case, the lender will file the suit against both the guarantor and borrower. A court may order a guarantor to sell some assets in order to pay off the loan,”
3. How do I withdraw myself from being a guarantor?
The easiest way out of being a guarantor is for the primary borrower to pay off their loan and end the arrangement.
4. Can the guarantor be changed?
If the borrower requests the lender to switch guarantors, the lender cannot do so independently. So you will have to convince the borrower to take on another guarantor, and the bank will then change the guarantor.
5. Can you go, guarantor, if you are retired?
You can have a self-funded guarantor or on a pension (if they are over 65 years of age) as long as they obtain legal advice before signing the loan offer and present the lender with a solid exit strategy.
This article has all the information regarding a guarantor, right from the guarantor’s meaning and the reasons you would need a guarantor. If you are someone who was looking for this terminology cause you are shifting to a new place, I hope the article was helpful to you and answered the basic question in your mind of what is a guarantor? That was all for today. Have a great day ahead.