I always advise people to go over their finances thoroughly before they enter into any type of loan agreement so you don’t run into any difficulties in the first place.
That being said, getting out of a loan if you run into financial difficulty isn’t entirely impossible either if you know what you’re doing.
In this post, I’ll be looking at options you have if you want to get out of a guarantor loan both as a guarantor as well as as a borrower.
How Do I Get out of a Guarantor Loan?
Before you can think about how you’re going to get out of your guarantor loan, first you have to look at what your role is in the loan agreement.
Are you the guarantor or the borrower? This is important because the approaches differ depending on what your role is.
As a Borrower
If you’re the borrower in the loan agreement, i.e., you’re the one who has taken out the loan and are now having trouble to repay the debt, then you’re going to have to look at other options to take care of it.
Please note that you must take actions fairly quickly if you are starting to fall behind on your payments towards the loan.
Once you start failing to make payments, the lender will ask your guarantor to make the payments for you. Please note that the lender may also take the payment directly from your guarantor’s bank account using a Continuous Payment Authority which is typically set up when your loan application is initially approved. All lenders that are authorised and regulated by the Financial Conduct Authority and offer guarantor loans have a right to do this.
Please note that defaulting on your loan repayments will be recorded on both your as well as your guarantor’s credit files. Thus, it’s very important that you take measures to take care of your debt if you’re starting to run into financial difficulties and want to opt out of the loan entirely.
The options you have of settling your debt if you can’t afford to pay it when it comes to a guarantor loan are pretty much the same as they are for any other loan.
These would, namely, be debt solutions such as an Individual Voluntary Arrangement (IVA), a Debt Management Plan (DMP), a Debt Relief Order (DRO) or bankruptcy.
An IVA involves a formal, legally-binding agreement between you and your creditors that you’re going to pay them back through affordable monthly instalments over the course of an agreed-upon period of time (usually 5 years). At the end of this duration, any debt that is leftover is written off. Please note that you will only be required to pay what you are able to afford.
Bankruptcy is much quicker than an IVA (typically lasts three years) but the important thing to note when it comes to bankruptcy is that your valuable assets are not safe. Assets such as your car and house could be repossessed and sold off in order to make up for your debt.
A Debt Management Plan is quite similar to an IVA in that you make affordable monthly payments towards your creditors. You can get a DMP set up for yourself by talking to a DMP advisor.
A Debt Relief Order (DRO) can work for you if your guarantor loan has a total amount of less than £20,000 and you have less than £50 of spare income every month. DROs last only a year after which your debt is completely written off.
It’s important to note that debt solutions such as these differ a lot from one another in terms of flexibility, how much of your debt is written off as well as the type of impact they have on your credit history.
For example, when it comes to a DRO, all of your debt is written off whereas in an IVA, only some of your debt is written off and even that isn’t always a guarantee. However, it’s much more difficult to qualify for a DRO than it is for an IVA.
It’s easy to qualify for bankruptcy and it involves the entirety of your debt being written off. However, your assets are not protected when you opt for bankruptcy.
Thus, when you’re considering getting out of a guarantor loan as a borrower, it’s very important to take all of these factors into account. Any debt solution you opt for is going to be mentioned in your credit file.
Your finances, assets as well as the impact these solutions are going to have on your credit score are all aspects that you should take into account when making this decision.
For more information on debt solutions as well as which one would be suitable for you, you can opt to seek advice from an independent debt charity such as StepChange.
As a Guarantor
Getting out of being a guarantor to a loan is quite difficult which is why I urge everyone to think it over thoroughly before they agree to be a guarantor for a loan.
If you want to stop being a guarantor, you’re going to have to approach the lender directly and inform them of this.
Whether the lender agrees to remove you as a guarantor from the loan agreement depends on a number of different factors.
If the loan hasn’t been paid out yet, it can be fairly easy to get yourself removed as a guarantor. All you have to do is contact the lender and they will remove your name without any costs to you or the borrower.
It is also fairly easy to have your name removed as a guarantor during the 14-day cooling-off period. This period occurs after you sign the loan agreement.
You also stand a fair chance of getting your name removed as a guarantor if the borrower takes out another loan from the same lender without your consent.
You can also have yourself removed if you were coerced in any way to become a guarantor or if you did not fully understand your responsibilities. Please note that you may have to provide proof if this is the case.
If your financial circumstances change and you are now incapable of making payments on behalf of the borrower, this can help you remove yourself as a guarantor from the agreement as well.
In any other case, you will most likely have to find a replacement for yourself and if the lender feels that they can be a suitable replacement for you, then they may consider a swap.
If you can’t find a replacement, want to stop being a guarantor and none of the circumstances I’ve described above apply to you, then you’ll either have to make the borrower pay back the debt in full or you’re going to have to pay it back in full.
Being a guarantor for loans is a huge responsibility that many loan guarantors don’t realise when they first agree to become one.
As I’ve described above, getting out of being a guarantor isn’t impossible but it is fairly difficult. Thus, you should think it over thoroughly before you ever become one.