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No, the lender will usually contact the borrower directly and give them several opportunities to repay before asking the guarantor to cover any missed repayments.
It is a common misconception. Many people believe that as soon as a monthly payment is missed, the guarantor automatically gets debited for repayment. However, this is not the case.
The lenders will usually always try to collect repayments from the main borrower who has applied, and follow up with emails and phone calls, and only contact the guarantor as a last resort.
When a customer has taken out a guarantor loans, the lender will usually send a repayment reminder on the days leading up to each collection. So if you are expecting collections on the 30th of the month, you may receive an email or text message 1,3 or 5 days leading up to that collection as a gentle reminder.
The payments are collected via a process called continuous payment authority. This is where your card is debited and the lender collects the amount owed each month automatically, allowing a smooth transition and no need for you to go to the bank, phone up or make a manual repayment. It is different to a direct debit because it is set up and cancelled by the lender – whereas a direct debit is set up and cancelled by you.
If you miss a repayment, you will automatically be sent an email as a follow-up. Guarantor lenders will understand that you may require up to 24 hours for your income to clear from work. If the loan repayment still remains outstanding, you may receive a follow up call or letters from the lender.
However, you have peace of mind knowing that you will not be harassed and only contacted a certain number of times as the lender must follow regulatory guidelines.
If the main borrower has not responded to any correspondence including emails, phone calls and letters and the loan amount still remains outstanding, the guarantor may be approached by the lender for repayment. As mentioned, this is always a last resort as the lender will try to avoid using the guarantor where possible.
At this point, the guarantor will usually contact the borrower directly and ask them to make a payment or provide an update.
However, if the payment remains outstanding and the borrower is not responding or gone AWOL, it is then the responsibility of the guarantor to make any repayments or the loan will be subject to extra fees and it may impact the credit score of those involved.
If you realise as the borrower that you are not going to be able to make your upcoming repayment, the best thing to do is contact the lender directly – and the sooner, the better.
By explaining your situation, lenders will often give you forbearance and this might involve extending your repayment date for another week, giving you a payment holiday or extending your loan so you are paying smaller amounts each month.
By speaking to the lender, you may be able to limit any extra charges and damage to your credit score; and save the need for your guarantor to get involved.
When applying for a guarantor loan, you should not rely on your guarantor to cover your costs. It is always important to budget and consider how you are going to repay your loan each month to avoid falling into arrears. You should avoid taking out additional loans to pay off your existing ones since this can cause a spiral of debt.