What happens if a guarantor cannot pay
You’ve managed to secure a loan using a guarantor, which means you got approved when you may not have previously been able to. This is great, it can be positive for a whole number of reasons, like rebuilding your credit score, or consolidating debt, but then something bad happens; not only do you miss your payment, causing your guarantor to pick up the payment, but then your guarantor misses the payment.
If a guarantor can’t make a payment it can reflect badly on their credit history, and as such have a negative impact on their credit rating. If they refuse point blank to make a payment, there are potential legal problems.
So what happens to the guarantor when a guarantor misses these payments?
Why would a guarantor need to pay?
First of all, you need to work out what situations have caused the guarantor to need to pay in the first place. This will happen when the original borrower fails to meet a scheduled repayment. The terms of a repayment will have been set out in the borrower’s contract by the lender, and it’s when these terms are broken that a guarantor may need to step in and make the payment.
This could be because of an unexpected bill, a change in circumstances or similar, but when a payment is missed a guarantor is expected to make up for it.
What if the guarantor is unable to pay?
While the guarantor loans lender’s criteria for accepting a potential guarantor are usually strict, and can be used to weed out people who may be unable to make up for missed payments, on rare occasions the worst may happen and a guarantor will miss a payment too. This could be for a number of reasons, similar to the borrower’s. It could be that a particular circumstance, emergency or unforeseen large expense has occurred that has stopped the guarantor being able to make a missed payment.
When this happens the lender will begin an investigation, and look to work with the guarantor to create a solution. In this case the lender will get in touch with both borrower and guarantor, and look to resolve the situation in the best way possible.
What if the guarantor refuses to pay?
While being unable to cover for a missed payment is not the best situation, it can be something that can be worked out in the long run. However, if a guarantor is able to make the payment but refuses to do so, it’s a completely different situation.
If the guarantor refuses to make up for the missed payment, they are in breach of the terms of the contract – it’s as simple as that.
In this case the lender will make an attempt to contact the guarantor, by phone, email or letter, maybe even by text. Once they’ve done this the lender may take into account any collateral that the guarantor has. This is one of the reasons that many lenders prefer their guarantors to be homeowners, as property can be used as collateral.
While the guarantor will have been informed at the beginning of the contract on the severity of refusing payments, they’ll have this reiterated if they refuse to make a payment. This is to give them a chance to make the payment willingly, before further action is taken.
Once the process has begun, a pre-court action warning letter will be issued. This will begin a 14 day window and, if payment has still not been received by the end of that window, the lender has the legal right to begin a court order.
It’s important to remember when first being asked to become a guarantor on behalf of a friend or family member, you fully understand how being a guarantor works, your responsibilities as a guarantor and what you need to know on why you cannot stop being a guarantor once you have signed the agreement with the lender.