Guarantor loan debt: help for borrowers and guarantors
A guarantor loan puts two people on the hook for one debt. Here is what happens to each of you when payments are missed, and what you can do.
Applies to: England, Wales & Northern Ireland
What to do now
- Borrower: tell the lender early and offer what you can afford using the budget calculator.
- Guarantor: ask the lender in writing for a copy of the guarantee and a statement of the account.
- If either of you could not afford the loan, consider a complaint to the lender, then the Financial Ombudsman.
What a guarantor loan is
The borrower takes out the loan and makes the payments. The guarantor, usually a family member or friend, signs a separate promise to pay if the borrower does not. The loan is usually unsecured, so it sits with credit cards and personal loans as a non-priority debt. Your home is not at risk simply because of the guarantee, although a lender that gets a county court judgment can later apply for a charging order against a homeowner, whether borrower or guarantor.
If you are the borrower
- Credit file. Missed payments and any default are recorded on your file.
- Your guarantor is contacted. The lender will usually ask the guarantor to cover missed payments, sometimes quickly. This is often what borrowers find hardest.
- Collectors and court. The account can be passed to a debt collector, and the lender can bring a court claim against you, the guarantor, or both.
- Deductions. Money can only be taken from wages or a bank account after a CCJ and a further court order.
If you are the guarantor
Under the Consumer Credit Act, a guarantor is entitled to copies of key documents, including any default notice sent to the borrower. FCA rules require lenders to check that a guarantor can afford the commitment, not just the borrower. If you are asked to pay:
- Ask for a copy of the guarantee, the loan agreement and a statement before paying anything.
- Tell the lender what you can realistically afford. It must treat you fairly if you are in financial difficulty, just as it would the borrower.
- Keep records of everything you pay. A guarantor who pays can usually try to recover that money from the borrower, though that is often not practical within a family.
Unaffordable lending complaints
If the lender did not check properly that the loan was affordable for the borrower, or that the guarantee was affordable for the guarantor, either of you can complain to the lender and then to the Financial Ombudsman Service. Interest and charges are sometimes refunded or the balance reduced.
Formal solutions
A borrower’s DRO, IVA or bankruptcy deals with the borrower’s own liability, but it does not release the guarantor. The lender can still ask the guarantor to pay, so talk to them before you apply. A guarantor in difficulty can include what they owe under the guarantee in their own debt management plan or formal solution. A free adviser can look at both positions.
You never have to pay for debt advice. MoneyHelper (government-backed), StepChange, National Debtline and Citizens Advice all give free, confidential advice with no obligation.
Common questions
Will a guarantor loan affect my guarantor's credit file?
If the borrower falls behind and the guarantor is asked to pay but does not, the guarantor can be chased and taken to court, which can affect their credit file. Missed payments by the borrower are recorded on the borrower's file.
Does bankruptcy or a DRO release my guarantor?
No. A formal solution deals with the borrower's own liability. The lender can still ask the guarantor to pay what is owed.
Can a guarantor complain about a guarantor loan?
Yes. If the lender did not properly check that the guarantor could afford the commitment, the guarantor can complain to the lender and then to the Financial Ombudsman Service.