Does a guarantor have any rights?
If you become a guarantor you might think that you are signing your life away – and you may be wondering if you have any rights. The answer is yes and no.
For starters, being a guarantor means that you have an obligation to cover any payments that are not made by the main beneficiary. So if you have agreed to co-sign a loan agreement with a family member or friend and they default on their monthly payments, you will be required to step in a pay on their behalf. That is the main responsibility of the guarantor.
The reason that they the main borrower was approved for a loan was based on your ability to back it up, and the lender would have looked at your credit rating and homeowner status when making this decision.
So what rights do you have as a guarantor?
You control the money: When the payment is made and the loan is funded, the money will go to your bank account as the guarantor. You then have a two week cooling period allowing you decide if you want to give the money to the borrower or send it back to the lender with no extra charges.
This is quite a pivotal position and if you do not fully trust the person you have agreed to sign with or want to manage their spend, you can give the money to them in stages and help them manage cashflow more effectively.
You can delay payment: Imagine that the borrower stops making payments and starts defaulting every month. The guarantor will be called upon but they are a last resort and the guarantor lenders we feature will typically take a number of measures and precautions trying to collect from the main borrower first. This will include emails, letters and phone calls, all spread out within a reasonable period of time to ensure that they are compliant with the FCA.
When you finally get called upon to make an outstanding payment, as the guarantor, you have some flexibility. After all, you may not have £1,000 on hand to just made a sudden payment. If the main borrower truly cannot afford a penny, you could always try come to some arrangement with the borrower and the lender and even make smaller monthly payments. Regulated lenders must offer forbearance and flexibility and this should avoid having an impact to your credit rating.
You cannot leave or stop being a guarantor: Sadly you cannot stop being a guarantor. One the agreement is signed, the funds are sent and the cooling period is over, you are a guarantor for the entire loan duration.
You cannot simply stop or be replaced with someone else since the loan terms and approval were based on your credit rating, affordability and ability to back up their loan. The only way to stop being a guarantor for that individual (maybe because you have had a falling out) is to try close the loan by paying it off in full – and this can be done by either you or the main borrower.
What to consider
Therefore, if you are going to be a guarantor for someone you need to consider your relationship and whether you trust them with both of your finances and can see this working out in the future.
Guarantor loans can be hugely beneficially, creating an opportunity for those with no credit scores or bad credit histories. If a parent or spouse wants to help someone financially but does not have the funds, being a guarantor allows the person to borrow £5,000 or £10,000 without having to put up the money themselves – so it plays an important role.
Guarantor Loan Comparison encourages you to read the terms and conditions before rushing into anything and also consider your long term relationship. Co-signing with a parent and a child, husband and wife is sensible, but things can get tricky when it is a boyfriend and girlfriend or work colleagues since you don’t know how things are going to materialise as a guarantor after 3 or 5 years. For any questions, contact us at [email protected]