When you apply for a loan or insurance you have to provide a guarantor. Usually, a guarantor is a person who is related to the borrower and agrees to repay the loan if the borrower cannot pay back the loan. So it is the responsibility of the guarantor to pay the rest of the loan if the main borrower defaults. When you are choosing a guarantor make sure you have the permission of the guarantor before putting their name on the agreement.
- An insurance guarantor is an individual who endorsed the agreement
- If the borrower fails to fulfill the agreement then the guarantor will take the liabilities
- In order to become an insurance guarantor you must be at least 21 years old
- An insurance guarantor must have an excellent credit score or won’t qualify as a guarantor
What Is An Insurance Guarantor?
An insurance guarantor is a third party in a contract who endorsed the agreement. An insurance guarantor is a person or a party who guarantees that promises made by the first party to the second party will be fulfilled. If for any reason the promises are not fulfilled then the guarantor will take the liabilities. Usually, insurance guarantors appear on insurance contracts and if you want to find out who the guarantor is then you have to look at the policy declaration page. The first Named Insured would be the guarantor.
What Are The Requirements For A Guarantor?
Anyone can’t be a guarantor. There are a few requirements that you have to fulfill to become a guarantor. They are:
1. You must be over 21 years old
2. You must have an excellent credit history
3. You should have a separate bank account for the borrower
The Responsibility Of A Guarantor
A guarantor works as a security for another person’s loan. Usually, a guarantor gives a guarantee to the repayments or full payments of the loan if the borrower isn’t able to pay the debts. If you want to be someone’s guarantor then you have to sign a credit agreement together with the borrower. Being someone’s guarantor is a good thing but it is very important to understand the risks and requirements to be a guarantor. People who have poor credit ratings or don’t have any assets to secure a loan require a guarantor. In this type of situation, a guarantor can help people get credit/loans to buy important things like homes, cars, and much-needed items like household appliances, essential repairs, and maintenance.
How To Choose The Guarantor
If you have low credit ratings then you have to find a guarantor who will help you obtain the required loan. However, finding a guarantor is not an easy task because you have to fulfill some requirements and not many people want to be a guarantor. You have to find a guarantor who is more than 21 years old and have a strong credit score. The guarantor must be someone who knows you extremely well like your parent, sibling, godparent, close friend, etc. Different lenders have different requirements when it comes to who can guarantee a loan. For example, many lenders don’t allow guarantors who are financially connected so it will rule out the spouses or partners. However, you can pay an extra check to make sure that either party is happy with the guarantor.
FAQs About Insurance Guarantor
1. Do Guarantors Get Credit Checked?
Yes, lenders will check the credit score of the guarantor to understand the financial circumstances. It will help the lenders understand whether they would be able to pay back the loan if the borrower doesn’t repay the loan or won’t be able to repay the loan.
2. What Are The Risks Of Being A Loan Guarantor?
There are quite a few risks available for a loan guarantor. It’s the liability of a loan guarantor to cover repayments, so if you are not happy with covering the repayments due then you should not agree to be a guarantor. Moreover, it could affect your credit score. This is because as a guarantor you take full responsibility for the loan despite the fact that you haven’t received any funds. So think twice before becoming a loan guarantor.
3. Can A Guarantor Be Removed From A Loan?
No, a guarantor can’t be removed from a loan. The reason is, there are so many checks done on the guarantor by the lender, and it is an intriguing part of the loan process. So, once the loan agreement is signed there is no way the guarantor can be changed or removed. However, if the borrower pays off the loan early then the guarantor can be removed. Therefore, closing the loan account early is the simplest option to remove the guarantor.
4. How Many Loans Can I Guarantee?
There is no exact number because as long as you pass the relevant affordability and credit checks; you can act as a guarantor for several loans. However, becoming a guarantor for several loans can create high financial risk and it can affect your credit score badly.
5. Does A Guarantor Have To Be A Homeowner?
No. There is no rule that says a guarantor has to be a homeowner.
6. What To Look For When Searching For Guarantor Loans?
There are a few things that you have to consider when you search for guarantor loans. They are:
1. The reputation of the lender
2. Interest rates
3. Terms offered
4. Approval times
5. Loan amount
6. Length of the loan term
7. Can Someone Retired Be A Guarantor?
Yes, a retired person can be a guarantor as long as he/she passes the relevant affordability and credit checks.
8. What’s The Difference Between A Co-Signer And A Guarantor?
There are some differences between a co-signer and a guarantor when it comes to their obligations and rights. Usually, a co-signer is referred to a person who signs a lease on behalf of someone else and is immediately responsible for the monthly rental. On the other hand, a guarantor doesn’t pay the monthly rent but remains responsible for the borrower and agrees to pay off the loan if the borrower cannot pay back the loan in time.
9. What Rights Do You Have As A Guarantor?
As a guarantor, you have some rights. You have the right to control the money. When the loan is approved the money goes to your bank account and you have two weeks to decide if you want to give the money to the borrower or send the money back to the lender. Moreover, you can delay the payment if the borrower starts defaulting every month. However, once you become a guarantor, you can’t leave or stop being a guarantor during the entire loan duration.
Last Updated on October 25, 2022 by Magalie D.
Magalie D. is a Diploma holder in Public Administration & Management from McGill University of Canada. She shares management tips here in MGTBlog when she has nothing to do and gets some free time after working in a multinational company at Toronto.