Unfortunately, once you have co-signed a loan agreement as a guarantor and the funds have been sent, you cannot simply stop being their guarantor.
This is because the original loan terms are heavily influenced by your ability to back up that person’s loan application and guarantee repayments on their behalf. This includes the loan duration, loan amount and the rate charged. So unfortunately, one cannot stop being a guarantor with a simple phone call or filling out a form.
When are guarantors used?
Guarantor loans are typically suited for those that might have been turned down by mainstream banks and lenders due to adverse credit. They can apply with the help of a guarantor with good credit who agrees to meet repayments if they cannot. There are around 12 lenders that offer guarantor loans in the UK allowing customers to borrow up to £15,000 repaid over 60 months.
Guarantors are also used by potential property owners who are looking to extend their borrowing facility, and need a guarantor to provide additional security (guarantor mortgages).
For first-time property buyers, those that have their parents as guarantors may be able to access loan-to-values of up to 100% which is significantly higher than the national average of 60%.
The typical guarantor is usually a parent or sibling who wants to help their relative get the finance they need. Other common guarantors include spouses, friends and close work colleagues.
For business loans, one can ask someone to provide a personal guarantee as extra security. This may be due to a huge loan facility, only one director in the firm or the main direct having less than perfect credit.
So if I cannot stop being a guarantor, what are my options?
It is understandable that you may no longer wish to be someone’s guarantor. Perhaps you are no longer in touch with the individual, do not have the disposable income or wish to avoid the financial responsibility.
The simplest way to stop being a guarantor is for the loan term to end. This means that the loan is repaid in full and the account is closed. You could potentially have the borrower clear the account or you could pay it off on their behalf.
For a guarantor mortgage, the borrowers may be able to re-mortgage or get new loan terms once their income and affordability has improved – although this may take a few years.
Can I switch being a guarantor with someone else?
Unfortunately, no. Lenders will rarely allow you to substitute your position as a guarantor with someone else. Again, this is based on the idea that the initial loan terms and approval was based on that original person and someone new could put everything out of sync. If you believe that you have a guarantor with a better income, affordability and credit history, you may be able to speak to the lender directly about switching but it is not common.
Are you still a guarantor if you die?
In the rare events that a guarantor dies, generally speaking, their spouse or next of kin will take the responsibility of being the guarantor. In some cases, the lender may have a claim on the deceased person’s estate in order to reclaim funds.
Read the terms and conditions
With guarantor loans and mortgages potentially lasting several years, it is so essential that you only act as a guarantor for someone that you really know and trust. A family member is usually a better option because you are always likely to see them whereas boyfriends and work colleagues come and go.
It is important to read the terms and conditions when co-signing a loan agreement so that you are aware of all the responsibilities and potential ways to exit the agreement.