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Can A Guarantor Loan Go Into A Trust Deed?

Updated: 6th October 2016

Guarantor loans are credit provided to an individual that has a “guarantor” standing behind them to pick up the debt repayments in the event that the loan falls into arrears. If the borrower doesn’t meet the contractual repayment terms the guarantee-provider may become responsible for making the payments. You may have seen them advertised recently by various operators including Amigo Loans.

Such guarantor loans appear to be enjoying a renaissance. Banks are currently unwilling to lend to anyone with a less than perfect credit history. Payday lenders charge extraordinary interest rates. Some people consider that guarantor loans bridge the gap (between banks and payday lenders) by providing access to credit at comparatively reasonable interest rates for those with imperfect credit records.  

Where people already have some credit arrears, they may only have been able to access new borrowing with the assistance of a guarantor. Often this new guaranteed loan quickly feels unaffordable. This is the point at which some realise they need to tackle their debts in a different way; further borrowing is either unavailable or unaffordable. Residents of Scotland have access to three formal statutory processes at this point; Scottish trust deeds, sequestration, or DAS.

Can you include a guarantor loan in a trust deed? The answer is that you must include all of your unsecured debts if you want to go ahead with a protected trust deed, including unsecured loans guaranteed by others for you. It isn’t possible to leave such a debt outside of a trust deed. The same is true for debt arrangement schemes and sequestrations.

Will the guarantor be protected legally if you enter a formal debt solution such as trust deeds, bankruptcy or debt arrangement schemes? The answer is no. Any protection extended by these schemes applies only to the individual using the scheme. The guarantor of the loan does not receive the same protection.

What will happen to the guarantor of a loan if you sign a trust deed? The lender is likely to hold them responsible for repayment of the debt. This means that they’ll usually need to make arrangements to cover your repayments. If they do not do this they might be exposed to legal debt recovery action.

It’s therefore apparent that anyone with a guarantor loan, and plans to enter a protected trust deed, should proceed with caution. It’s quite possible that it will be the best solution for them but they should also consider the ramifications for the guarantor. Discussing the situation with the guarantee-provider in advance makes sense. It might turn out that they are happy to take over the repayments if it will help you to resolve a wider financial problem.

Would you like to discuss your debts with a qualified debt adviser? Please feel free to contact us and our team will work hard to assist you. You may also wish to raise questions in our forum where you can receive online feedback from debt professionals.

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