Are late repayments taken automatically from the guarantor?

The question: If a borrower defaults on their guarantor loan, is the outstanding balance automatically taken from the guarantor’s debit account. The answer is simply, no.

Whilst every successfully funded customer will have a guarantor back up their loan in case they cannot repay, if it just a monthly payment that has not gone through, the lender will always try to collect outstanding funds from the main person first and foremost.

When a customer defaults on a repayment, the lender will always send an automatic email and SMS to notify them that the collection has not gone through. The lender will take the necessary steps to try retrieve the funds from the main borrower and only if all options have been exhausted or the borrower has skipped town, will the guarantor step. Contacting the guarantor for repayment is only usually as a last resort.

Why do payments not go through?

Very commonly, it is a matter of the borrower’s debit card needing to be updated. Since their old debit card was saved to the system, it would have failed when the lender tried to make a collection through continuous payment authority.

Other typical reasons are that the borrower has not been paid by work yet so they are waiting for the money to enter their account. It is because most people set up their repayment date to be on the day they get paid from work, because they are mostly likely to have money in their account. However, since payments from work can sometimes be late, some people choose to make the collection date as the day after pay date.

Once contacted, what are the outcomes?

If the customer does not respond to any messages and payment still goes unsettled, the lender will take the steps to retrieve their funds, following the practices of the FCA. This includes a certain number of follow up calls and email that are in accordance with Treating Customers Fairly and do not burden the customer.  The outcomes are that the individual will respond and make payment or if they are struggling, they may arrange a pay plan or arrangement to repay in smaller amounts. At this point, an agreement is made with the lender so additional interest is frozen.

If the individual has fallen into debt management, it means that they will be working with a charity or professional company who will be responsible for organising their debt. This means that all future repayments will go through this company and this may involve paying £1, £5, £10 or £20 per month for several years until the debt is paid.

But if the fails to respond to any communication and the lender cannot get hold of them, THEN the guarantor will be approached and required to make repayment on their behalf. Since the borrower and guarantor should have a close relationship, the guarantor may be able to contact the person and that could help sort out the arrears.

What are your rights as a borrower?

• The loan vendor must be able to give you ‘forbearance’ whether this is a few extra days to pay or freezing interest – any way that they can be understanding and sympathetic is encouraged by their regulators.

• The lender will try to ‘ping’ your account everyday for repayment but as a borrower, you have the right to call up bank and ask them to cancel it. This is if you need more time to get the repayment together. However, you should notify the loan provider if this is the case.

• You have the right to ask for a repayment plan or arrangement to make the amounts repayable smaller and more manageable. The interest should be frozen at this point, but the total balance will still need to be paid.

• You can look for different options for paying off your loan or contact the Citizens Advice Bureau for free and impartial advice.

What are your rights as a guarantor?

• The repayment will not be taken from your account automatically, you will always be given plenty of notice before any collection is made.

• You will only be required to repay that monthly repayment, not the entire balance, unless the borrower has a long-term debt issue.

• You can always contact the initial borrower to see if they can make repayment or at least part-repayment.

• You cannot cancel being someone’s guarantor as the loan may have only been approved based your personal trust, credit rating and homeowner status.
• You cannot ask someone else to be your guarantor instead of you. The only way to stop is to pay off the loan in full.

Depends on the lender’s procedures

Every lender we feature on Guarantor Loan Comparison will have a different process when it comes to handling collections. However, the information provided will always be transparent. Every company we work with has been authorised by the Financial Conduct Authority so can you be rest assured that any defaults will be handled professionally and with respect. There is no need to worry about bailiffs or court orders as our lenders will follow the approved processes of the FCA when taking collections.