What a guarantor pays when the borrower misses payments

When you guarantee someone's loan, you promise to repay it if they cannot. What surprises many guarantors is the size of that promise: depending on the terms of the agreement, the guarantor may become liable to pay back everything the borrower owes, not just the payments they have missed¹. If the borrower stops paying, the lender can come to you for the full outstanding balance, including interest and charges.

A guarantor loan is one where a friend or family member agrees to cover the debt if the borrower defaults. Guarantors normally need a good credit history, to be at least 21 years old (18 in some cases), to live in the UK, and to have a separate bank account from the borrower¹. The loan is usually paid into the guarantor's account first, who then passes it to the borrower³. This page explains what happens to you as guarantor when the borrower misses payments, and what your options are.

The guarantor can owe the whole loan, not just missed payments

The core rule of a guarantee is simple and stark: the guarantor agrees to pay the total amount owed if the borrower cannot⁷. Debt charities put it the same way: depending on the terms of your agreement, the guarantor may become liable to pay back everything that you owe, not just the payments you have missed². So a borrower who has kept up repayments for two years of a five-year loan, then stops, leaves the guarantor facing the whole remaining balance, not the one or two instalments in arrears.

This is why lenders check the guarantor as carefully as the borrower. Some ask for proof of income, proof of work, or require the guarantor to be a homeowner to show there are assets that could cover the debt¹. The guarantee is a legal commitment for the life of the loan, and larger loans take several years to pay back⁶.

What happens to your credit score and your home

As long as the borrower pays on time, being a guarantor does not normally affect your credit rating, and credit reference agencies do not usually record your guarantee on your credit report while repayments are up to date¹. That changes if things go wrong. If the borrower defaults and you are pursued, the debt can be recorded against you, and any payments you make on the borrower's behalf are added to your credit history and could reduce your credit score¹. A guarantor loan that is not paid back on time can negatively affect both people's credit scores¹.

Non-payment can also lead to legal proceedings, which could further damage your credit score⁹. Where the guarantee secures a mortgage, the stakes are higher still: with a guarantor mortgage you are liable for any missed payments, and a charge can be held against your own house by the mortgage provider¹⁰. Guidance on mortgage arrears suggests that if you do not contact the lender or you miss up to three payments, the lender may start legal action against you¹¹, and a lender who cannot agree a repayment plan might start court action to repossess your home¹². See also how loans affect your credit file.

When the borrower enters a debt arrangement or goes bankrupt

A common and painful trap: the borrower enters a formal debt solution, such as bankruptcy, a debt relief order or an individual voluntary arrangement, and the guarantor assumes the debt has been dealt with. It has not. The borrower's liability for the debt is included in the formal arrangement, but the guarantor remains fully liable and is expected to maintain the original repayments³. If the borrower enters any arrangement with creditors, formal or informal, the loan company will default the loan and contact the guarantor to keep up the original payments³.

The loan itself will usually default after two or three missed payments if the borrower does not take steps to deal with the debt⁴. One narrow exception works in the guarantor's favour: if the guarantor themselves goes bankrupt, the guaranteed debt is included in their bankruptcy and the creditor cannot chase them for it, even after the bankruptcy ends (this is the position in England)¹³.

Does the lender have to contact me before asking me to pay?

Lenders are expected to make contact and offer support before escalating. In other credit markets, the lender will contact the borrower after one or two missed payments and should discuss ways to catch up and pay the arrears¹⁴, and mortgage providers similarly contact the borrower to find out why a payment has not come through and give them the chance to get back on track¹⁵. More generally, if you have missed a payment, the company must offer you support to help you pay it back, for example pausing interest and charges, before taking further action like taking you to court¹⁶.

For guarantors, the practical position is that the lender will usually write to you once the account is in default. The guarantee means you can be pursued even if the lender has not exhausted its options against the borrower, so a period of silence from the lender does not mean the debt has gone away.

Can I stop being a guarantor once the loan has started?

No. You can only change your guarantor during the loan application process; once the loan has been paid out, you cannot change the guarantor¹⁷. There is a short window at the outset: Experian describes a two-week cooling-off period during which the guarantor can give the loan back to the lender⁶. After that, the guarantee runs for the whole term.

Ways out later are limited to: the borrower repaying the loan in full, the lender voluntarily agreeing to release you, or a successful complaint that you were wrongly accepted as guarantor (see below). Concerns about the borrower's ability to pay are easier to raise before default than after it. See what to do if you can't repay a loan.

Complaining about an unaffordable loan or a wrongly accepted guarantor

The Financial Ombudsman Service receives complaints about guarantor loans from both borrowers and guarantors¹⁸. Consumers who feel they have been given unaffordable credit, or that the lender acted irresponsibly in providing the product, may be able to complain¹⁹. If the company does not reply within eight weeks, or the reply is not satisfactory, customers may complain to the independent ombudsman²⁰.

In a guarantor complaint about being asked to make payments, the ombudsman looks at whether the lender completed reasonable and proportionate checks before it lent to the borrower and agreed to you being the guarantor, and whether it obtained your agreement properly¹⁸. Where the ombudsman finds a guarantor was wrongly accepted, it will usually say the guarantor is released from the guarantee, that any payments they have made are refunded with interest, and that information added to their credit file is removed¹⁸. See complaining your guarantor loan was unaffordable and how to complain about a lender.

What the Financial Ombudsman can order: refunds plus 8% interest

The ombudsman has a wide range of redress powers. Depending on what went wrong, it might ask the lender to change the amount owed, refund money, make repayment arrangements, or compensate for distress and inconvenience²¹. Where a borrower was wrongly given the loan, the ombudsman can tell the lender to refund the interest and charges paid, with interest, and remove adverse credit file information; alternatively it can remove interest and charges so the balance is only what was lent, deducting payments already made²¹. It can also waive interest for a period, give extra time to make missed payments, or restructure the loan²¹.

Refunds of unaffordable credit can include the interest added to the loan, charges added when the borrower could not repay on time, and an extra 8% interest if the complaint goes to the Financial Ombudsman Service⁵. Where the guarantor was wrongly accepted, the refund of payments they made goes to the guarantor, not the borrower¹⁸.

Where to get help if you are struggling or being pressured

Free debt advice is available from the point a payment is missed, or earlier if a missed payment looks likely²². Help is available free of charge from National Debtline, StepChange, Business Debtline and Advice NI, and from Citizens Advice on checking whether a financial firm has followed the rules¹⁶.

If someone is pressuring you to act as a guarantor, HSBC is clear that this is a form of financial abuse¹⁷. Creditors themselves are prohibited from pressuring you to pay off a debt by borrowing more money²³. Where a guaranteed debt cannot be paid, a debt adviser can look at the guarantor's own options, including formal solutions that would include the guaranteed debt¹³.