Is It Ethical To Take Out A Guarantor Loan?

Image via WikipediaWelcome to a question that occasionally gets asked to me and raised by people who are either unsure of guarantor loans or don't know really how they work. Let me first start by giving you my view on this.... My view is simply, yes, they are ethical, but I will now go on to explain why I think this and why others may not - Hopefully I can convert your thinking to my way of thinking.
Let's start with the basics, how does a guarantor loan work?; Essentially this type of product allows an applicant with a poor credit history to gain access to a loan of between ?500 - ?5000 at competitive interest rates by requiring an additional party to sign the credit agreements as well. This 3rd party is known as a guarantor and must be a homeowner to add extra security to the application. The guarantor essentially does nothing for the duration of the loan, unless the applicant falls into default on his / her payments. If this happens then typically the guarantor has to step up and make repayments until the applicant is able to do so again.
So what is the main ethical question involved here? I would say it's simply, shouldn't people be accountable for their own debt? You may think this is true, and certainly I do in some situations, but let me give you an example of a situation where a guarantor loan works beautifully. Say, someone is looking to desperately borrow some money but isn't able to get the credit they need. They may ask friends and family for a loan, but although they want to help, can't afford it. However, if they agree to be a guarantor on the applicant's loan, then they will be massively helping the applicant get the money that he / she needs, while not having to put up a single penny of their money. Now if the guarantor fully trusts the applicant then their should be no problems and the loan will be repaid in full - the guarantor has then done the applicant a favour which they should feel good about and in future the favour can be returned - A nice little arrangement.
One thing I would say is that the guarantor has to be sure that they trust the applicant will make the repayment or be willing to make repayments should the applicant fall into default. As long as both parties are aware of this fact, then I don't see why a guarantor loan couldn't be ethical.