If you refuse to pay, the consequences can be the same as if you defaulted on a loan you’ve taken out yourself 😦
- Damaged Credit File – missed payments will show up on your credit file, which could impede your ability to obtain future credit, although the more payments that are missed the greater the impact.
- Fees & Penalties – some lenders may charge fees as a penalty for missed payments, and this will obviously increase the debt that needs to be paid back and the overall burden on the borrower and you. Fees and charges vary from lender to lender. Make sure you find out the exact rates before the loan is taken out, so you are aware of potential additional expenditure.
- County Court Judgement (CCJ) – Depending on your lender, after a certain number of missed payments they may apply for a CCJ for both you and the borrower. This is where you attend Court and if the Judge agrees that you owe the money, they will order it to be paid.
- If the money is paid within a month of the order, the CCJ does not appear on your credit file.
- But if the amount is not paid, the CCJ will show for the next six years severely affecting your opportunity to get credit (even a mobile phone contract).
- If affordability is the issue, then the Judge may propose a payment plan, though the CCJ will still show up on your file.
- Charging Order – If the CCJ is not complied with, it’s possible that
- Your lender could request a Charging Order against a property owned by either the borrower or the guarantor.
- If in the future you wish to sell or re-mortgage the property on which the charging order has been placed, the amount owed to your lender will be deducted out of the proceeds and repaid to them.
- Bankruptcy – If any payments ordered by the CCJ are not met, it is possible the lender may apply for bankruptcy. This is not common for anything other than larger loans. So, whilst the possibility of you being made bankrupt is highly unlikely, you should understand that this is the very worst case.
As you can see, there can be major implications to being a guarantor, so if you are not fully confident of your ability to make the loan repayments should the borrower default, then you are not suitable.
> Everything you ever wanted to know about being a loan guarantor <