A guarantor is a must if the primary borrower fails to match the loan provider’s credit and income requirements. He acts as a guarantee of getting the loan payments timely. Thus, the borrower may qualify for the loans. Moreover, he gets one at better and lower interest rates. The guarantor’s strength of income and well-managed profile help one fetch that. 

However, if getting a loan with a guarantor or acting as a guarantor, the blog may help. It lists the duties that a guarantor or the third person must perform on the loan. Knowing these will help you choose the guarantor wisely and rely on him for finances. 

What does a guarantor mean?

A guarantor is an individual who is responsible for the payments if the borrower cannot pay. He does not need to pay until the prime person can afford the repayments. He helps one fetch instant loan which otherwise could lead to rejection. The loan provider matches the borrower and the guarantor’s finances to calculate the amount to provide. With a guarantor, one may qualify for a higher amount. 

Who can be a guarantor on the loan?

Generally, the criteria and eligibility to become a guarantor remain the same across loan providers. However, age requirements or income may differ slightly (if they must). Here is who can be a guarantor on the loan:

• A guarantor must be a citizen of the country
• He should be at least 21 years of age
• He should be a homeowner (in most cases)
• He must hold consistent and authentic income sources
• The income of a guarantor must be higher than the prime borrower.
• He must not be undergoing a legal case or bankruptcy
• He must be a close relative or a friend of you

Yes, you cannot rely on everyone for your finances. Thus, identify and choose the person carefully. Check whether he can help you pay the dues if you cannot. Can you trust the person with the finances? Can he help you achieve your personal goals?

When should one consider a guarantor?

The situations may differ according to the person’s circumstances and financial needs. One may need a guarantor under certain situations.

 For example- you must fill out the examination form by a specific date, however, you forgot. Now, you must file it but you lack the funds to pay the fee. Here, not having a valid income as a student may increase the trouble.

 Your father may operate as a guarantor to help you get an instant loan to meet the educational requirements. He may help if he has a valid income and credit score to qualify.

You may consider a direct loan with a guarantor from lenders who fall within your affordability and eligibility criteria. It may help you set clear expectations with a guarantor and be transparent about the responsibilities and financial situation.

Here are some other situations where a guarantor may help:

• You lack a valid income or are unemployed
• You don’t meet the credit score criteria
• You have a poor credit score or no credit history
• Your income does not suffice the loan income requirements
• You need to borrow a higher sum at a bad credit score
• You don’t have a bank account

Note: Always remember that choosing the right guarantor is important. Analyse and improvise whether the person may commit until the long-term agreement.

What is a guarantor responsible for on a loan?

When you file for a loan, the provider discusses the responsibilities of a borrower and the guarantor. You must know what the other person ought to do on the agreement. This clarity helps you ensure the right coordination and helps settle the loan quickly. Moreover, this transparency helps you avoid the rifts in the relationship. Here is what the guarantor is responsible for on a loan:

a) Pay the dues on the borrower’s behalf

A guarantor is responsible for paying off the dues if the borrower cannot do so. It could be under grim financial situations. For example- business failure, pay cuts or sudden layoff may affect the person’s potential to repay the instalments. Here, the guarantor must take the charge and repay the remaining dues wisely. It will help avoid the loan default.

b) Identify the impact of missed payments on credit score

The guarantor must analyse how would the agreement affect his and the borrower’s credit rating. A well-educated person or a guarantor will take the necessary steps to avoid missing the payment. He would be able to guide the person or the prime borrower against skipping the payments.

c) Regulating the loan amount effectively

The loan provider transfers the loan amount to the guarantor’s account after the approval. Thus, the third person is responsible for checking the apt usage. As a guarantor, you must regulate the use and provide only what the borrower needs to spend. It will help you ensure the good usage of the funds and avoid wastage.

d) Repay the monthly instalments in a timely

Paying the loan instalments timely is critical to avoid unnecessary penalties later. Identify what you can do to ensure regular payments. You hold the charge and upper hand over the borrower on the agreement. It is especially true if you act as a payment backup on facilities like loans on benefits income. Generally, the loan provider requires the prime borrower to have a guarantor if he lacks a part-time income source.

This is because benefits income does not count as valid proof of income for most providers. Thus, a guarantor’s regular income helps one qualify. It is the guarantor’s responsibility to remember the payment dates. You can either set direct debits (if you trust the prime borrower). Otherwise, you can also set payment reminders or tracker to track the payment dates.

a) Understand the impact of the loan on the relationship

It is one of the most important parts of a guarantor loan. You cannot move ahead without the “TRUST” factor. The guarantor should respect the borrower’s request to keep the financial deal just between the two.

Besides that, the person must understand and coordinate well with the primary borrower. There should not be any trace of confusion that might lead to a feud later. This is because repairing the ties after miscommunication may be challenging. This confusion in bonding leads to loan default.

Bottom line

Thus, a guarantor is responsible for the loan payments if the primary borrower fails to pay. He cannot leave the agreement if the primary borrower defaults. Thus, knowing your responsibilities and terms as a guarantor helps you make the right decisions. On the other hand, the borrowers must choose a person whom they can trust with their financial needs and money management. A guarantor-based loan may help you fetch loans at low interest rates and terms.