The concept of a guarantor is not new. The idea is that a second person provides support for someone who is looking to enter into a financial arrangement, whether that¡¯s renting a property or borrowing money. That second person guarantees the obligations of the first. So, for example, if you¡¯re not able to make rent payments, a guarantor agrees to make them for you. Today, there are lots of different financial products and situations in which a guarantor can be incredibly useful. In fact, for many consumers today it may be difficult to get the debt/property/services that you want without one.
When might you need a guarantor?
Guarantors come in useful in many different situations, including:
- Borrowing money as a loan
- Applying for a mortgage
- Setting up a credit account with a utility provider
- Entering into a tenancy agreement
You may find that you¡¯re being asked to provide a guarantor for a number of different reasons, such as a lack of credit history or a low credit score. If you¡¯re a student then your landlord may ask someone to guarantee your rent (especially for foreign students) and if you have a low income then a lender may ask you to find a guarantor to support an application to borrow.
Who can be a guarantor?
Each lender, landlord etc will have their own set of criteria in terms of who qualifies to be a guarantor. This is usually someone over the age of 18 with a strong credit history and/or a good income. However, if you can¡¯t find a guarantor for whatever situation you¡¯re in there are also businesses that, in certain situations, can act as guarantors for your obligations (see below).
Rent guarantors
Foreign students, recent graduates or those on a low income often find that a landlord or letting agent may ask for a rent guarantor to provide peace of mind when it comes to ensuring all payments will be made. Where a guarantor is not available it may be necessary to make rent payments upfront in blocks of six or 12 months. If you don¡¯t have any family or your family is not financially secure enough to be a satisfactory guarantor, this may seem like the only option. However, there are now business guarantors that can provide the reassurance a landlord is looking for without the need to pay rent in advance.
Business guarantors, such as Housing Hand and UK Guarantor are aimed at students, recent graduates and working professionals who have been asked to provide a guarantor with a renting application. For a fee that is linked to the size of rent payments, these organisations will guarantee rent over a period of time so that there is no requirement to pay upfront. Most offer loyalty rewards ¨C for example, students who use the service for three years during university receive a year free on graduation.
If you can¡¯t find anyone to guarantee your rent and are not able to use a business guarantor there are still options. You can:
- Demonstrate your positive rental history and provide references from previous landlords
- Offer to pay for a rent guarantee and legal expenses insurance policy, which will payout to the landlord if your rent payments are missed
- Increase the size of the security deposit that you¡¯re willing to pay
- Agree to make upfront rent payments.
Guarantor mortgages
It¡¯s not easy to get approved for a mortgage today, as affordability criteria have become stricter and house prices are high. A mortgage application supported by a guarantor is much more likely to be successful, especially if the applicant has a poor credit score, a small deposit or is self-employed.
Guarantor mortgages give the lender more peace of mind, as the mortgage payments are guaranteed by a third party. Mortgage guarantors normally need to be homeowners themselves, with a strong credit score and an income that is sufficient to cover any repayments that a borrower might miss. For most guarantor mortgages you will still need to have a deposit and the guarantor will be bound to its commitments until a specified amount of the property value has been paid off.
Today guarantors come in all shapes and sizes and are a great option for anyone struggling to get accepted for a loan, tenancy or other types of credit. If you have problems with your credit score, and/or a low income, finding a guarantor could open the door to the financial support that you need.