When becoming someone’s guarantor for a loan, there are certain obligations expected from you.
When becoming a guarantor, you’ll be required to cover any repayments that the main beneficiary fails to make. If the borrower you are a guarantor for fails to keep up with repayments, it then becomes your responsibility to keep up with any outstanding repayments on their behalf.
This is one of the key reasons why guarantor loans exist, helping to back up an application and convince lenders that even if the main borrower cannot keep up with repayments, the guarantor will be able to step in and cover the cost for this instead.
This is also why guarantors will typically have to prove that they are capable of keeping up with loan repayments, potentially even more so than the main borrower, who may have a bad credit score or other adverse details making it difficult for them to take out the loan by themselves.
But what rights do you have as a guarantor? Can you ever stop being one? And are you always obligated to pay for a loan when the main borrower defaults? Here, Lending Expert explore answers to all of these frequently asked questions and more.
So, What Rights Do Guarantors Have?
Your rights as a guarantor can include:
- Control over the money:
When a guarantor loan application is approved, the guarantor is in control of the money. Instead of being sent straight to the main borrower, the loan will instead initially be sent to the guarantor.
The guarantor can then be given a two-week period where they are able to send the money straight back to the lender with no additional charges – here they have time to consider whether they want to go through with being a guarantor for the loan or whether they’d prefer to opt out of this deal entirely.
Having this control over the money can also be a great benefit to the guarantor, meaning they can give the loan out to the main borrower in stages to better manage the loan and the main borrower’s use of it.
- May have certain flexibilities with repayments:
For many lenders, calling on the guarantor is a last resort, after they have exhausted a number of other measures to try and get the loan repayments from the main borrower. If the lender still cannot collect payment from the main borrower, the guarantor will be called on the step in as per the loan agreement.
However, the lender may allow certain flexibilities for the guarantor, for example making monthly repayments a little smaller and more manageable.
Can You Stop Being a Guarantor?
No, if you have signed a loan agreement agreeing to be a guarantor, and the loan has been given, you cannot stop being a guarantor for that loan.
Being a guarantor for a loan can be challenging, especially with some lasting over quite a significant period of time, by which you may not be on good terms with the main borrower, and want to break association with them on the loan agreement. However, unfortunately this is not possible once the loan has gone through and the main borrower has effectively started to borrow the loan.
Becoming a guarantor for someone is a big commitment to make. Therefore, it’s vital that you don’t rush into such an agreement, and take the time to carefully consider whether or not you’re really prepared for becoming a guarantor.
It’s best to only agree to being a guarantor with someone who you are close with, someone you have a good relationship with and that you plan to be in your life for the long-term.
What Happens If a Guarantor Refuses to Pay?
If a guarantor refuses to pay for the loan in the circumstances that require them to step in, they are breaking the agreement/contract signed with the lender. This means that the lender can take legal action against the guarantor.
This is different to the guarantor being unable to pay for the loan. While the stringent checks that often come when assessing a guarantor for a loan application mean it’s unlikely the guarantor will be unable to pay, people’s financial situation can unfortunately change quickly and unexpectedly.
In the case where the guarantor is not simply unwilling to pay for the loan, but genuinely cannot afford it, the lender will sometimes work with them to try and find a solution and make repayments more manageable.
Becoming a Guarantor: Things to Consider
When becoming a guarantor for someone’s loan, one of the most important things to consider is whether you could comfortably afford this loan should the worst happen and you are required to step in and make repayments.
Guarantors are assessed for their eligibility, so it’s important to check that you meet all of the lender’s eligibility requirements, helping to increase the chances of an application being approved.
It’s also important to consider what your relationship is with the main borrower you are agreeing to become a guarantor for. It’s best to only agree to become a guarantor with people that you trust, someone that you plan to stay in contact with long-term that you feel confident are able to keep up with the loan repayments.