When someone takes on the role of a guarantor for a loan, they are committing to ensure the repayment of that loan if the primary borrower defaults. But circumstances change, and sometimes a guarantor may wish to withdraw their guarantee. In this guide, we’ll explore whether a guarantor can stop being a guarantor during the loan term in the UK.
Understanding the role of a guarantor
Firstly, it’s essential to understand what being a guarantor means. A guarantor is someone who guarantees to repay a loan if the primary borrower can’t or won’t. Guarantors are typically required for people who have no credit history, poor credit history, or are borrowing a larger sum than usual. Being a guarantor is a serious commitment, and it can have financial implications if the borrower defaults.
Can a guarantor withdraw their guarantee?
In most cases, once a guarantor agreement is signed, it is binding until the loan is fully repaid. The guarantor cannot typically decide to stop being a guarantor just because they’ve changed their mind or their personal circumstances have altered.
However, there are a few potential exceptions:
- Mutual agreement: Some loan agreements might allow a guarantor to withdraw with the consent of both the lender and the borrower. However, this is rare.
- Refinancing or new loan terms: If the borrower decides to refinance their loan or alter the terms, the guarantor may be released from the obligation if they don’t agree to the new terms.
- Loan repayment: If the borrower repays the loan in full, the guarantor’s obligations end.
- Contract terms: Always read the fine print. Some contracts may have specific clauses that allow a guarantor to withdraw under particular conditions.
Consequences for withdrawing as a guarantor
If a guarantor does manage to withdraw their guarantee (through one of the rare routes mentioned), they should ensure that they have documentation that officially releases them from the obligation. Without this, they might still be pursued for repayment if the borrower defaults in the future.
If a guarantor tries to withdraw without an official route, there could be legal implications. They could be sued by the lender for breach of contract, especially if the borrower defaults.
Preventing the need to withdraw
To avoid the complications of wanting to withdraw as a guarantor:
- Understand the commitment: Before agreeing to be a guarantor, be sure about the obligations and potential financial implications.
- Assess the borrower: Only guarantee loans for people you trust. It’s crucial to assess their financial situation and their ability to repay the loan.
- Stay informed: Stay in touch with the borrower and the lender to be aware of any issues with repayments or changes to the loan terms.
In the UK, once someone has agreed to be a guarantor, it’s challenging to withdraw from this responsibility during the loan term. While there are a few rare scenarios where it might be possible, the best approach is to understand the commitment fully before agreeing to be a guarantor. If you’re considering becoming a guarantor or withdrawing from such a role, seeking professional legal advice is always a good idea.