No, this will not happen as soon as you take out a guarantor loan. When a contract is co-signed between the main borrower and the nominated guarantor as an individual, the expectation is the former will be making repayments for the loan.

The responsibility of the guarantor is to co-sign the contract and ensure the loan is paid back if it is required of them. The guarantor is only required to pay the guarantor loan back if the main applicant is unable to do so due to a change of circumstances, or if they simply do not pay.

Why is it the guarantor’s responsibility to pay the loan?

In the aforementioned scenario, the guarantor must pay the loan back as they are legally obliged to do so. The loan is granted primarily on the basis of the creditworthiness of the guarantor, which means this individual plays a very important role in the process.

The loan is largely based on the creditworthiness of the guarantor due to the level of risk typically incurred in lending to the main applicant, who may have bad credit, a CCJ or needed credit after IVA.

This is because the main applicant usually needs a guarantor because they fall under one of the following categories:

  • No credit history
  • A bad credit score
  • They do not have a stable income

As a result, the guarantor’s income, employment, age, credit score, and homeowner status become very important in the process. The level of risk granting the loan is mitigated through the creditworthiness of the guarantor, and they become legally obliged to pay if the main borrower cant.

What happens if I can’t pay my guarantor loan?

If you are the main borrower who cannot pay the loan back (even with a modified repayment plan) then your guarantor will be contacted for payment.

As previously stated, the guarantor lender will usually try to sort out payment with you first before contacting the guarantor. It is worth highlighting that asking the nominated guarantor for payment is always considered the last port of call.

For example, if you miss one loan repayment the lender will not automatically contact your guarantor, or take money from their account.

The lender will usually try through a number of ways to contact the main applicant (by phone, email or letter) to get payment from them. If these attempts all fail, then the guarantor is then contacted using the same methods.

However, if you contact the lender and inform them you can no longer make repayments at all due to a change in circumstances, then the lender will contact the guarantor.

What if the guarantor refuses to pay the loan?

  • Assets used as collateral may be taken
  • Court action could be taken
  • Credit score is affected

If the guarantor can pay but decides not to when requested to do so, assets used as security for the loan could be taken to pay the loan back. This depends on the lender and the terms of the loan agreement, as not all guarantor loans are secured with a high-value possession such as a car or house.

The lender may also take legal action if the guarantor refuses to pay the loan. A court order may be taken out against the individual, which may force this person to pay the funds back.

Another thing that will happen is that the guarantor’s credit score will be affected. Defaults on loan payments negatively impact a person’s credit score, as this is always recorded on their credit file.

Consequently, it is always vitally important that both parties fully understand the potential risks that can be involved when agreeing to a guarantor loan.