What Happens If My Guarantor Cannot Pay My Loan?
The very nature of a guarantor loan, is having someone you know to guarantee the loan.
A guarantor loan is a loan where the borrower has someone they know sign as a guarantor, which means if the borrower fails to make the loan payments, for whatever reason, the guarantor will pay the loan payments.
This form of lending has many benefits to borrowers, one being that even with bad credit or no credit, they can be approved for a loan.
Guarantor loans are based on affordability, and once again, the fact there is a guarantor.
But what happens if the borrower cannot pay the monthly payments?
If this were to occur, the lender would be in contact with the guarantor and ask them to pay the payments.
This is what the guarantor agreed to when the loan was granted.
However, what happens if the guarantor does not pay the payments if the borrower defaults on the loan?
There may be two (2) reasons why a guarantor may not pay the payments in a situation where the borrower fails to pay the payments:
* The guarantor cannot afford to pay the payments
* The guarantor refuses to pay the payments
The outcome in both these situations, as we will see is the same, however, they can be two very different situations.
When a guarantor loan is underwritten and approved, both parties, the borrower and the guarantor are reviewed and looked at for affordability, and also the guarantor’s credit.
So the lender has a degree of confidence both parties can afford the loan, but there can be times when life changes for us.
What Happens If a Guarantor Loan is in Default and The Guarantor Does Not Pay?
With guarantor loans it is expected that the borrower pays the monthly payments, if for any reason those payments are not paid, the lender will contact the borrower as to why the payment(s) have not been paid.
If the borrower cannot pay the payment(s), the lender will then contact the guarantor to pay the payment.
The guarantor is responsible and liable for the loan payments until the borrower can pay the payments again, no matter how long this time frame may be.
If the guarantor cannot pay the payments, for whatever reason, such as they may have lost their job, or no longer can afford to repay the payments, or they refuse to pay the loan payments, the lender may escalate their collection efforts against the guarantor.
If for any reason the guarantor can no longer afford to pay, while in the end the outcome can be the same, the lender may try to work out a repayment arrangement between both the borrower and guarantor to make payments.
If no agreeable payment arrangement can be set-up, or the guarantor refuses to pay, the lender can begin the collection process against the guarantor, which an include having the loan reported as being in default on the guarantor’s credit history, and possible legal action, such as a CCJ/County Court Judgment, and even Enforcement Orders, such as the use of Bailiffs, wage attachments, and even Charging Orders.
The loan is the responsibility of both the borrower and the guarantor, but the bottom line is that the guarantor has signed and accepted the liability of the loan from the beginning. Should the borrower fail to pay the loan, the guarantor is expected to and is liable to pay the loan.