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Who is really responsible for repaying a guarantor loan?

April 17, 2019  | Guarantor Loans
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Guarantor loans are a different type of borrowing than fast cash loans, bank loans or secured loans. They actually require two signers, and the responsibility for the loan is not shared equally. Since these loans aren’t as well known as some of the others, it can leave some people confused as to how they work and who is really shouldering the responsibility for repaying the loan.

We’re going to look at the mechanics of this loan and help you understand who holds the most responsibility when borrowing money this way.

How Guarantor Loans Work
Before we can talk about who is responsible for this loan, we need to discuss the basics of it. In a guarantor loan, there are two borrowers. The initial borrower is the one who applies for the loan and needs the money in the first place.

The second signer is the guarantor or co-signer. This person agrees to repay the remainder of the loan if the primary borrower cannot repay the loan. The guarantor is the one who has to have credentials to be approved for the loan. Their credit history may come into play, as may their income and current bills. They will be more closely examined than the primary borrower for this type of loan.

The initial loan is in the primary borrower’s name and not the guarantor’s. It’s their loan for now, and their responsibility to pay off. They are to be making all the payments and keeping up with the loan. The money from the loan goes into their bank account, after all.

However, once they are no longer making payments or once they pay late or once they are not repaying the loan according to the terms they agreed to, then the loan shifts over to the guarantor.

Who Has Responsibility?
Once that happens, and the initial borrower is no longer paying on the loan, then the guarantor has to take on all the responsibility for the loan. The loan is theirs now, and they have to make sure they are paying the loan on time and communicating with the lender. It’s their credit on the line at that point, and if they fail to repay the loan as they are supposed to, then their credit rating can take a hit. They will also have to pay late fees, higher interest rates and other charges, according to the terms of the loan. The initial borrower no longer has any stakes in the loan or responsibility for it, as far as the lender is concerned.

It’s obvious then that the one with the primary responsibility for this loan is the guarantor. They are the one who is closely scrutinized and who has to present the most proof that they are able and willing to repay the loan in a timely manner. All the risk of worsening credit and higher interest rates falls to the guarantor.

The initial borrower is expected to pay, but the lender isn’t necessarily counting on them to do so. Their responsibility for the loan is more of a veil for the real responsible party. Yes, they should be the one repaying the loan, but that doesn’t always happen, and the lender invariably turns to the guarantor for repayment of the loan.

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