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Dealing with debt can be tricky if you have a guarantor loan. We explain the options (and risks) for you and your guarantor.
These loans are available if your credit rating isn’t perfect. They generally come with a high rate of interest. The loans can be large. These factors combined make guarantor loans risky for the lender. The default rates are high.
So that the lender has more security, a guarantor gets involved. If you don’t make your payments, the guarantor becomes responsible.
Well known providers include Amigo, George Banco, and UK Credit.
The guarantor is usually a family member or personal friend.
An unsecured guarantor loan gets treated the same as any other debt. Your trust deed treats it the same as a credit card or overdraft.
The lender can vote whether to accept your trust deed. They’ll receive a dividend from the trust deed. Your liability for the debt ends when you get discharged.
You will not be able to continue paying the loan directly. You cannot leave the loan out of the trust deed.
Your guarantor receives no protection from your trust deed.
The guarantor has agreed to make the payments if you do not. The lender will demand payment from them.
These work the same way as trust deeds.
Entering an arrangement will provide you with protection from the lender. Your guarantor isn’t protected via your DAS or bankruptcy.
Your lender should have checked you could manage the loan repayments. If you could not reasonably afford the payments, you have grounds to complain. For example, did you have many other debts with high repayments? Should they have found this out?
If a lender agrees with your complaint they may assist you. Interest write-offs and/or reduced payments might be possible. This could help to protect the guarantor.
If a lender rejects your complaint, take it to the Financial Ombudsman. They’re impartial and will judge a case on the facts presented.
A debt management plan is a flexible arrangement. Lenders get offered a reduced monthly payment. This could cause a problem. The guarantor will be asked to make up the difference.
There may be scope to treat guarantor loans differently. Other lenders might accept the guarantor lender getting paid in full. Once this loan gets cleared, there will be more money to clear the other debts.
The size of the guarantor loan might justify it getting paid in full. This might apply if you have high disposable income. It might apply if your other debts are modest compared to the guarantor loan.
These options can only get assessed on a case-by-case basis. Contact us for personal advice.
The guarantor becomes responsible for payment if you don’t pay. If they don’t pay, the lender can take action to recover the money.
This is especially risky if the loan was secured upon property. The guarantor’s home could be at risk.
Making payment could leave the guarantor financially stretched. This could cause personal conflict between you and them.
You have contractually agreed to repay the debt if the borrower doesn’t.
This still applies if they have entered a formal debt solution.
If the repayments aren’t affordable, you should obtain debt advice. There will be steps you can take to protect your own position.
The lender should check a guarantor can afford the repayments. This doesn’t just apply to the borrower. If the payments aren’t affordable, ask them to remove you as guarantor. You can complain if they refuse.
Has the loan has been increased without your consent? Were you pressured into guaranteeing the loan? Have you been coerced by an abusive relationship? Is the borrower in a position of power over you? These are all potential grounds for complaint.
If a complaint gets rejected, take it to the Financial Ombudsman Service. They will make an impartial and fair judgment. They can require the lender to act.
If you can’t find the paperwork, you could call the lender to check. You can call to check whether you’re the guarantor.
The following firms are well-known providers:
For personal advice about your debts contact us directly.