Guarantor Loan Debts. How To Deal With Them. StepChange

A guarantor loan is when someone else, such as a family member or friend, agrees to repay the loan if you can’t afford the repayments. The person who guarantees the loan is responsible for any repaying debts on the loan.

Rental agreements and mortgages can also be guaranteed in the same way.

Guarantor loans, a type of consumer credit, are usually marketed at people who have bad credit or have been turned down by other lenders.

Interest rates for many guarantor loans are high, often around 50% APR (annual percentage rate) or more. Larger loans are often paid back over several years.

Due to the high interest rates you could end up paying back more than double the amount you borrowed.

Because the loan payments are guaranteed by someone else, the debt is similar to a joint debt where both people are responsible for paying it back if one person can’t. This can cause problems if you’re unable to afford the loan as the guarantor becomes jointly responsible for the dealing with the debt.

Are you a guarantor for a friend or family member's rent, loan or mortgage? Read our guide for guarantors and learn about the risks and responsibilities.

How does a guarantor loan work?

The creditor agrees to lend the money based on the guarantor’s ability to repay the loan in full.
The guarantor will be asked to prove they can afford the repayments, based on their income, savings or assets. They may secure the loan against their property.
Sometimes the loan money is transferred directly to the guarantor to pass on to the borrower.
Before getting to the stage where the account defaults, try to agree affordable payment arrangements with the lender.

What happens if I don’t repay a guarantor loan?

If you fall behind with a guarantor loan or can’t afford to pay it, the lender will ask the guarantor to catch up with payments, or take the payment directly from their bank account using a Continuous Payment Authority (CPA) which is usually set up on approval of the loan.
If payments are not made to the account it will default and the lender can then ask the guarantor to make the repayments, or take the money from the guarantor's bank account.
The debt will be dealt with using the normal debt collection process which could involve the debt being passed to a collection agency or court action being taken.
The default will be recorded on the credit files for both the borrower and the loan guarantor.

This places a significant risk on the guarantor, as they’ve agreed to repay the debt if you can’t.

If a family member or friend is your guarantor, the impact of them having to pay the debt could cause relationship problems, stress and financial difficulties. If they’ve secured the loan against their home, it could be at risk of repossession.

I owe money to Amigo Loans, do I still have to pay it?

Amigo Loans are being investigated for irresponsible lending, but as they are still trading, you should continue to make payments, if you can afford them. If you can’t keep up with your payments, you should get debt advice.

Are guarantor loans a good idea?

Although this type of loan might seem a good option for people who are looking to improve their credit file, it’s important that you and the guarantor are fully aware of the risks involved.

You should be aware of the cost of the debt and interest rates, as these can be quite high and lead to further problems. If you’re looking at a guarantor loan for consolidating debt there may be other, more affordable options available to you.

Need help with a guarantor loan?

If you’re struggling to repay a guarantor loan, or you’re looking for help dealing with your debts, we can help. Take two minutes to answer a few simple questions, so we can understand the best way to support you.

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