How Are Repayments Collected?

The guarantor loans we feature are repaid in equal monthly instalments over 1 to 7 years. Each lender has a different loan term with some having a minimum loan term of 2 years and others having a maximum term of 5 years.

loan-repaymentsDuring the loan application, you will provide a pay date for when you would like your collections to take place. This repayment date will also be confirmed in your loan agreement and when you speak to the lender over the phone.

The pay date is typically the last Friday of the month or the day that you receive your salary from work.

Customers are required to make repayments using their debit account and you will need to confirm your card details with the lender during the application process.

Repayments are collected using Continuous Payment Authority 

Most guarantor lenders use a process known as Continuous Payment Authority to make collections. Also known as ‘recurring payments,’ it is a process that allows lenders to access your debit account on your pay date and collect the amount owed.

Continuous Payment Authority is different to a direct debit or standing order. A Continuous Payment Authority payments are taken using your debit card details, and show on your statement as a debit card transaction, whereas direct debits and standing orders are debited directly from your bank account.

This collection method is different to a direct debit or standing order because this is when the customer sets ups automatic repayments and can cancel it anytime. However, with Continuous Payment Authority, the lender has to set it up on their side and they are the only ones that can cancel it.

If the customer wants their recurring payments to stop, they have the right to cancel at any point, they must simply contact their lender or card issuer. If the payments are not stopped, the individual can request a refund from their card provider.

Only debit accounts are valid 

Debit accounts are the preferred method for guarantor lenders to collect repayment. This is because it is where most people receive their salary from work and can be set up for automatic collection. Therefore, it is common for lenders to confirm and verify the card numbers for the borrower and guarantor prior to approval.

It is unlikely that guarantor lenders will accept payment via credit card because this is like using one type of loan to pay off another and may lead to a spiral of debt.

In rare cases, when a loan is overdue, the lender may receive cash or cheque as a form of repayment. In the event that you are in arrears and a debt management company or charity is handling your debt, your repayments may be sent in the form of cheque to the lender.

You will be sent repayment reminders 

Since your repayments will be collected automatically from the lender, you will receive reminders on the days leading up to each collection. This is a regulatory requirement and may involve an email or text message sent to you on the days before your collection is due – so there are no surprises and you can have money in your account ready to be taken.

If you repayment does not go through

If your automatic collection is not successful, the lender may try to collect from your account later that day using Continuous Payment Authority. There is a maximum of two limits per day that the lender can try collect money from your account.

As soon as a repayment is not successful, you may receive an automatic email from the lender saying that the collection did not go through. This could be due to a lack of funds or perhaps you have new card details that need to be updated. Failing to repay may cause the lender to call you or send you a follow up letter in the post.

If a payment is outstanding for a long period and you have not responded to any emails or phone calls from the lender, your guarantor will be approached and asked to cover the outstanding balance on your behalf. For more information, visit our guide on what happens if you cannot repay your loan.

Early repayment 

If you find that you are in the financial position to repay your loan off early, you can simply contact the lender and clear your accounts. Some lenders have a customer login where you can go into and pay.

As most lenders charge a daily interest rate, repaying your loan off early will save you money as you only pay for as long as the loan has been open. For example, if you were approved for a guarantor loan for 7 years and decided to pay after 3 years, you will only pay 3 years worth of interest.

Some loan providers have a minimum time period before you can pay off you loan such as 1 year. There are various lenders that will not charge any fees for early repayment but some that do, so be sure to check your loan agreement or contact your lender for more information.