5 Things to Understand Before Acting as a Guarantor
Agreeing to be a guarantor is usually done as a favour to family and is one of the more consequential financial commitments a person can make.
1. What the commitment is
You agree to pay if the borrower or tenant does not.
Liability is typically for the whole amount, not a proportion, even where several guarantors exist.
Many agreements allow the lender to pursue you without first exhausting attempts against the borrower.
The obligation usually continues for the full term, and in tenancies frequently continues into periodic extensions after the fixed term ends.
2. The effects on you
The guarantee generally appears on your credit file and counts against your own borrowing capacity.
Missed payments by the borrower can damage your credit record as well as theirs.
It can affect your ability to obtain a mortgage, since lenders count the contingent liability.
3. In tenancy agreements specifically
Guarantors are commonly liable for rent, damage and sometimes the whole property in a joint tenancy — meaning other tenants' rent too.
That last point catches people. Guaranteeing one person in a shared house can mean guaranteeing all of them, depending on the wording.
Read whether the liability is limited to your individual's share, and ask for it to be limited if not.
4. Before agreeing
Read the actual document rather than relying on a description of it.
Establish the maximum you could be liable for, and whether it includes interest, fees and costs.
Establish how and when the guarantee ends, and get that in writing.
Ask whether a smaller deposit, a rent guarantee insurance product or a paid guarantor service would work instead.
5. Protecting the relationship
Agree with the borrower what happens if payments are missed, and how you will be told.
Ask to be notified of arrears early rather than after enforcement begins.
Consider whether you could afford to pay without it damaging you, and treat that as the real question.
Take independent advice before signing anything secured against your home.
Final Thoughts
Agreeing to guarantee someone is usually done as a favour and is one of the larger financial commitments available. Read the actual document, establish the maximum exposure, and take advice before signing anything secured on your home.
General information; this is not legal or financial advice.
Author: This article is general information only and does not constitute professional advice. Circumstances vary, and you should consult a qualified professional before making decisions based on this content.
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