05 Nov Do Guarantors Have Any Rights?
Yes a guarantor has a lot of rights and because the loan is funded into their bank account first, they have the power to control whether or not the loan is passed onto the main applicant and can also delay payment.
However, being a guarantor is a huge responsibility as there are certain legal obligations that you will need to adhere to (such as repaying the loan if the borrower cannot).
In this guide, we will take a closer inspection as to what these guarantor’s rights are, and the responsibilities they have.
Rights that a guarantor has
- Controlling the guarantor loan funds
- Delaying payment for an outstanding loan
- If they cannot repay, they can make smaller contributions and flexible repayments
Rights over the guarantor loan funding
If you co-sign a loan agreement and agree to be a guarantor, the money will be transferred into your account and not the main applicant’s if approved.
This is a security measure, because the guarantor is likely to have a better credit rating and so the lender wants to ensure the money goes to a safe account.
This gives you control over what happens to the money. Simply put, you decide as to whether these funds are transferred onto the main applicant, or if you decide to cancel the contract and send the money back within a two-week cooling period.
If you do decide to transfer the money onto the main borrower, you also may decide to give them the funding in stages to help them better manage their cash flow.
Keep in mind that the right to cancel the contract and send the full loan amount back is only possible during the initial two-week cooling off period.
This is standard practice for lenders, and allows you to change your mind if you are having doubts being a guarantor. Alternatively, it gives you a chance to cancel if your trust is waning on the main borrower’s ability to pay it back.
If you do decide to return the guarantor loan during these two weeks, you will not incur any fees.
Delaying loan payments
The guarantor lenders we work with at Badger Loans must offer flexibility and forbearance when it comes to payment defaults. As the guarantor, you will only be called upon to make payments for the loan if all attempts to take payment from the main borrower have failed.
Lenders will typically contact the main applicant in a variety of ways such as by phone, email or letter before getting in touch with the guarantor.
These contact attempts are spread out over a specified period of time and are in compliance with rules set out by the Financial Conduct Authority (FCA) and it creates a delay when it comes to you being eventually contacted.
As you are only expected to pay as a last resort, lenders typically provide a greater deal of flexibility to the nominated guarantor.
What rights does a guarantor not have?
- To stop being a guarantor after the two-week cooling-off period
- To choose someone else to be the guarantor instead
You cannot suddenly stop being the guarantor
If the agreement has been signed, the funds have been transferred and the cooling off period is long over, unfortunately you cannot stop being a guarantor.
This is very important to remember, as once you have signed the contract you become legally obliged to make payments on the main borrower’s behalf if they do not pay. This is considered to be the main responsibility of a guarantor.
Always carefully consider if you want to become a guarantor, or are willing to take the risks associated. Questions you should think about before becoming a guarantor include:
- What is the loan going to be used for?
- Is taking out a guarantor loan necessary for the main applicant?
- Are there other ways to obtain credit with less financial risk to you?
- Do you fully trust the person who you would become a guarantor for?
You cannot nominate another person as guarantor
It is not possible for you to swap with someone else as a guarantor once you have signed a contract. The main reason for this is because the decision to grant the loan and the amount was largely based on your income and credit profile.
Since the main applicant is applying for a guarantor loan due to bad credit or no credit history, the lender looks to your credit report instead. A guarantor loan is largely approved based on your strong credit rating, stable income, age, and possible homeowner status.
If someone else was to replace you, they are unlikely to have the exact same creditworthiness as you.
Is there any way to stop being a guarantor?
The only two ways to no longer be a guarantor involve either paying back early the entire loan yourself, or the main applicant does instead.
If this is done, keep in mind that early repayment fees could apply. These charges will differ from lender-to-lender.