What Risks Does a Loan Guarantor Face?

Friends, relatives, or acquaintances are often asked to become guarantors for loans or mortgages. We explain whether it is worth agreeing and what risks might arise.

Who is a Guarantor

A guarantor is a person who promises to repay the debt of the primary borrower if they are unable to pay. For the bank, guarantors are an additional guarantee. The lower the risks for the bank, the better the loan terms it can offer.

Anyone can become a guarantor; they do not have to be a relative of the co-borrower. The person must meet several criteria:

• Have a permanent, sufficient, and stable income;
• Be an adult citizen;
• Have been employed at the current job for at least four months;
• Have a good credit history showing that payments were made on time and the person is a responsible borrower;
• Provide the requested documents to the bank, usually a passport, employment record, and income certificate.

When to Agree to Be a Guarantor

Guaranteeing a loan is a voluntary procedure; the person decides whether to sign the contract. If there are any concerns about the borrower’s ability to pay, it is better to refuse.

Analysts recommend signing a guarantor agreement only if there is confidence in the borrower’s solvency. It also makes sense to agree if the interests of the guarantor and borrower coincide. For example, it may be safe to act as a guarantor for a spouse’s mortgage since the apartment will be jointly owned.

If you suspect the borrower may not make payments consistently, or you do not know them well, it is better to refuse. Especially if the loan is long-term.

You should also refuse if the monthly payment is too high and you would not be able to pay it on behalf of the primary borrower.

What Are the Risks

The guarantor bears joint responsibility with the borrower. The risks include:

• If the borrower cannot pay, it becomes the guarantor’s problem as well. The guarantor is responsible for the debt and must make the payment. If they refuse, the bank may go to court, and bailiffs may seize both the borrower’s and guarantor’s accounts. To avoid this, the borrower should immediately contact the bank if financial difficulties arise, e.g., to arrange debt restructuring or loan holidays.
• If the guarantor fails to fulfill their obligations to repay the loan for the borrower, their credit history will be negatively affected. This can only be avoided by paying the debt on time without delays.
• The bank takes the guarantor’s obligations into account when considering a new loan application. If the guarantor wants to borrow money themselves, the bank will include the guaranteed loan in their debt load calculation, which may lead to refusal or approval of a smaller amount.

Can a Guarantor Refuse to Pay?

A guarantor cannot refuse to pay because they assumed the obligations when signing the contract. However, they can demand repayment from the borrower. If the borrower refuses, the guarantor can go to court to recover the money. It is important to keep all documents that confirm the situation: loan agreement, guarantor agreement, payment receipts, and other related papers.