When securing finance or a loan, especially if the borrower has a limited credit history or a poor credit score, lenders might require a guarantor. This person guarantees to pay back the loan if the borrower fails to meet the repayment obligations. However, situations may arise where either the borrower or the guarantor wishes to change or remove the guarantor during the finance period. This guide explores the potential complications associated with this process.
Understanding the role of a guarantor
Before delving into the complications, it’s essential to understand the role of a guarantor. They serve as a backup for lenders, offering an extra layer of security. They are legally obligated to cover any missed repayments or, in some cases, the entire loan amount if the borrower defaults.
Reasons for changing or removing a guarantor
There could be multiple reasons to change or remove a guarantor:
- The guarantor’s financial situation might change, making them unable to fulfill the role.
- Relationship breakdowns between the borrower and guarantor.
- A borrower’s improved credit score might mean a guarantor is no longer necessary.
Complications in changing or removing a guarantor
- Lender’s policy: Most guarantor car finance providers have strict rules about changing or removing a guarantor once an agreement has been set. The primary reason was that the guarantor was a significant factor in their decision to offer the loan in the first place.
- Re-assessment of creditworthiness: If a borrower wishes to remove a guarantor, the lender will typically reassess the borrower’s financial situation. The borrower might need to prove they have become more creditworthy since the loan’s inception.
- Potential for fees: Some finance agreements might impose fees for administrative changes, including the process of changing or removing a guarantor.
- Time-consuming: The process can be lengthy, involving paperwork, additional credit checks, and potential delays, especially if a new guarantor needs to be vetted and approved.
- The strain on personal relationships: Asking to change or remove a guarantor might strain personal relationships, particularly if the guarantor feels they are being sidelined or if they have already made financial commitments based on being a guarantor.
- A new guarantor might not be accepted: If changing a guarantor, the new person must meet the lender’s criteria. There’s no guarantee they’ll be deemed acceptable, potentially leaving the borrower in a precarious situation.
Steps to take if considering a change or removal
- Review your contract: Before making any decisions, review your loan or finance agreement. It should outline the terms related to changing or removing a guarantor. Look for any associated fees or clauses that might restrict changes.
- Discuss with your lender: Before making any formal application, it’s worth discussing the situation with your lender informally. They can offer guidance on the likelihood of approval and the process involved.
- Open communication with your guarantor: If contemplating this change, ensure you maintain open and honest communication with your current guarantor. This can help avoid any personal conflicts or misunderstandings.
- Seek legal advice: In complex situations or if there’s uncertainty, consider seeking legal advice to understand your rights and potential ramifications better.
Changing or removing a guarantor during the finance period is not a straightforward process. While there are legitimate reasons to consider it, the complications can make it a challenging endeavor. It’s crucial to approach the situation with careful consideration, armed with knowledge, and ideally with the support of both the lender and the guarantor.
