StepChange Guarantor Loans
Guarantor Loan debts – How to deal with them
You’re probably reading this because you’ve received a letter from a creditor informing you that the borrower, whom you guaranteed a loan for, has failed to make the loan payments.
We know how you must be feeling as we have seen this happen more times than we care to mention. Don’t worry though, TRDG is here to help you solve the situation (as if you didn’t already know)!
Like we always say, the first thing to do is to stay calm! Don’t jump onto the phone and start promising actions that may not be realistically sustainable.
Instead follow these steps...
Step 1 – Speak to the borrower
Your first action should be to speak to the borrower, find out what has led to them to default on the loan. More importantly, is it resolvable? If it’s the first time you found about the missed payments – meaning the borrower never informed you – then it’s less likely that the situation is resolvable by them.
The unfortunate thing about Guarantor Loans is that it can really negatively affect relationships between people who may be seen as close.
Ironically, the criteria that lenders of Guarantor Loans set out, is that they prefer the guarantor to either be a relative or a very close friend. The only logical reason for this, is because of the emotional connection between the borrower and the guarantor. The creditor may be thinking...
“You may not care about not paying your loan back to us, but are prepared to fall out with your older brother, Auntie Susan or even your Mum and Dad over this debt”
We are yet to speak to anyone in this situation who hasn’t had some sort of personal fallout from a defaulted guarantor loan.
Step 2 – Contact the creditor
Hopefully you’ve established the state of play with the borrower, we say hopefully as sometimes borrowers have been known to just “disappear” meaning they become uncontactable.
Whatever happens, you don’t want to leave it too long before you get in touch with the creditor.
Remember to communicate via letter or email not over the phone.
I can clear it...
If the borrower is unable to take financial responsibility for the debt, and you are in the financial position to clear the debt. Then it may be as simple as obtaining details to make the payment (they may already be on the letter you received).
Put it all behind you and take it as a lesson learned.
I can’t afford to clear it...
If you cannot afford to clear the debt, then you need to find out what your options are. You may want to use our template letter to put forward an offer of payment towards the debt. This can trigger a conversation and also establish the intentions of the creditor.
You may be asked to complete an income and expenditure form. Luckily for you, we have you covered in that area with our budget planner, all you need to do is enter your figures and it will do the rest
Step 3 – The creditor is not accepting my offer...
There’s a bit of a grey area in terms of recovery of Guarantor Loans, whilst as a consumer you are protected by Financial Conduct Authority (FCA), some creditors may try and pursue the debt more aggressively. Methods might include the threat of court action.
If you are in a situation where this route is a real risk, and you unable to clear the debt. Whilst we do not recommend borrowing, you may want to look at the possibility of clearing the debt via a personal loan or credit card. That way if you are finding the payments difficult to maintain in the future, you have clear options to manage the debt.
Like what TRDG?
We thought you’d never ask! Head over to our unsecured debt section to see your options just in case you ever need them.
Step 4 – I have received a Claim Form...
If you have already received a claim form, again, do not panic! Head over to our specific guide to understand how to deal with this situation and what your options are.
Step 5 - Getting your money back
Once you have dealt with the unfortunate situation you are in, you may wish to try and recover, or at least reduce your loss. If you can, speak to the borrower to see if there is any possibility of them making some sort of payments to you or towards the debt.
We do understand that emotions may be running high so choose a time when you are calm. Remember, this situation will not define you, learn and grow from it.
Don't forget to read The Real Debt Guy's final thoughts below!