StepChange Guarantor Loans

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...

Your first action should be to talk to the borrower and find out what has led them to default on the loan. More importantly, is it resolvable? If it’s the first time you found out about the missed payments – meaning the borrower never informed you – then it’s less likely that they will be able to resolve the situation.

The unfortunate thing about Guarantor Loans is that they can really negatively affect relationships between people who may be considered close.

Ironically, lenders' criteria for Guarantor Loans often require the guarantor to be a relative or a very close friend. This is because of the emotional bond 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 have yet to speak to anyone in this situation who hasn’t had some personal fallout from a defaulted guarantor loan.

Hopefully, you’ve established the state of play with the borrower. We say hopefully because 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 contact the creditor.

If the borrower cannot take financial responsibility for the debt, and you are in a 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.

If you cannot afford to clear the debt, you need to determine your options. Use our template letter to make an offer of payment toward the debt. This can trigger a conversation and also establish the creditor's intentions.

You may be asked to complete an income and expenditure form. Luckily, our budget planner has you covered. All you need to do is enter your figures, and it will do the rest.

It’s important to remember that as a consumer, you are protected by the Financial Conduct Authority (FCA) when it comes to Guarantor Loans. However, some creditors may still attempt aggressive debt recovery action, such as threatening court action.

If you are in a situation where this route is a real risk, and you cannot clear the debt, whilst we do not recommend borrowing, you may want to look at clearing the debt via a personal loan or credit card. That way, if you find the payments challenging to maintain in the future, you have clear options to manage the debt.

We thought you’d never ask! Head over to our unsecured debt section to see your options if you need them.

If you have already received a claim form, do not panic! Read our specific guide to learn how to deal with this situation and your options. You can find it here.

Once you have dealt with your unfortunate situation, you may wish to try and recover or at least reduce your loss.

If you can, speak to the borrower to see if they can make any payment to you or towards the debt.

We 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.

The Real Debt Guy is a qualified financial adviser and a UK debt expert. The information in this article is considered to be true and correct at the publication date.