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Can I Stop Being a Guarantor on a Loan?
Choosing to be a guarantor is something that should be considered carefully before you sign your name on the dotted line. While it may be relatively easy to agree to being a guarantor, getting out of being a loan guarantor is far more complicated. In some cases, choosing to stop being a guarantor may not be an option available to you at all.
Why can’t I choose not to be a guarantor anymore?
When you sign up to be a guarantor for someone, whether for a friend, relative or loved one, you enter into a formal loan agreement with specific contractual terms in place. What does that mean? In the simplest terms, the lender has chosen to provide that money to someone else based mainly on your position as guarantor. You are an integral part of that loan process, and it is your legal obligation to continue to act as a guarantor in most cases.
Once you agree to be the guarantor on a loan, your credit score, location, and affordability checks will play a significant role in whether or not that loan is approved. This means that the money was lent to the other person based on your circumstances rather than theirs.
The difference between being the borrower and a guarantor is who receives the money and is expected to pay the money back. As a guarantor, you are a safety net for the lender to ensure they receive their money even if the borrower is unable to pay, instead of the person that will receive the cash up-front.
Is there any time I can get out of being a guarantor?
If you have already signed on to be a guarantor, but you have changed your mind afterwards, there are a few options available to you. While not guaranteed, you may be able to get out of being a guarantor through one of these methods:
Speaking to the lender directly
In some cases, speaking to a lender directly can resolve your issue. However, this only applies if you’ve signed as a guarantor, but no money has been handed over yet. Effectively, by letting the lender know you no longer want to be legally responsible, you are cancelling the loan in its entirety, so this is an essential factor to consider before going ahead.
Cancelling during the cooling-off period
Typically, loans will have a 14-day cooling-off period from the signing of the agreement. As a guarantor, you cannot cancel directly, but you can ask the borrower to cancel the loan within the time period, which removes the responsibility.
If the borrower refuses, there is little you can do unless other loans are taken out in your name without your permission. If that occurs, you may be able to cancel with the lender and withdraw your guarantor responsibilities.
Finding a replacement guarantor
If you have a change of circumstances and are no longer happy being a guarantor, there is the potential option for you or the borrower to seek a new, suitable guarantor in your place. This is entirely at the lender’s discretion, but it’s worth asking to see if this method is possible.
Will I need to pay for a loan as a guarantor?
Assuming the loan is paid on time and in full, you won’t need to pay anything as a guarantor. However, you will be required to pay off the loan should the borrower stop making payments or be unable to continue covering the repayment of the loan. It’s crucial that you only choose to be a guarantor for individuals you trust 100% and who you believe have the ability to pay their loan in full.
Will signing up as a guarantor affect my credit rating?
If payments are made on time with no issue, there will be no reflection on your credit rating. The only circumstance in which your credit score will be affected is if the borrower defaults on their loan. If you do not take over payments promptly, this may lead to problems with your credit rating due to defaulted or missed payments.
How else can I stop being a guarantor?
Beyond the circumstances and methods listed above, there are a handful of ways to end your position as a guarantor. These include:
- The full repayment of the loan by the borrower
- A lump-sum payment to repay the loan instantly
- The lender going out of business
- Overpaying on the loan alongside the borrower
As many guarantor loans offer the option to pay early or overpay, this is one legitimate way to pay off a loan faster to end your responsibilities as a guarantor.
Want to learn more about guarantor and no guarantor loans? View our other articles and posts now to find out more about loans and finance, or get in touch with our team today to find out how we could help you find a guarantor loan for yourself or a loved one.