Guarantor loans are on the rise and as they are seen as a more attractive, friendly and safer way for people to borrow money, it is likely that you will hear more about these loans. In fact, you may even be asked to be a guarantor for someone.

If this is the case, it is likely that you will be asking what does being a loan guarantor mean, and thankfully, there is a simple answer.

When you decide to act as a guarantor, you are stating that you will guarantee that payments for the loan or credit contact will be made in the event of the borrower failing to maintain their payments. You can see how your role is an important issue for lending companies as you provide the confidence that the payments will be made. It is therefore important to realise that acting as a guarantor is a very serious commitment and it is not one that should be rushed into.

There are a number of things to consider before you agree to be a guarantor and this is an area where the Citizen’s Advice Bureau has provided guidelines. There are some questions that you should ask yourself, including:

Why is there a need for a guarantor?

If someone is looking to take out a guarantor loan, they may have been denied the opportunity to obtain a loan in a more traditional manner. Is this because they have a poor credit history and is there a chance that these problems will arise again, forcing them to miss payments?

Is the borrower responsible enough to have a loan?

You should only agree to be a guarantor if you know the borrower well enough to answer this question and to be confident that they are responsible enough to pay back the loan.

Is the loan necessary?

Even if you are confident that the borrower is reliable and will pay back the loan, you should ask yourself if they really need to take out the loan. It may be that the money they require is obtainable if they make some savings, and it may be that you should encourage the borrower to think about all of their options before they commit to obtaining a loan.

While obtaining a guarantor loan is a more attractive and safer option than payday loans or other borrowing options, a loan should be a later resort, only focused on when other methods of raising funds have been exhausted.

Are you able to pay the loan back, including debt recovery costs?

If you are committing to be a guarantor, you are promising to ensure that the loan and costs will be paid if the borrower fails to do so. Therefore, you need to be 100% committed and convinced that you can make this payment. If you know that you will not be able to make this payment, do not act as a guarantor.