The Death of a Guarantor What Happens Next?

signature-962355_640Many people, including young people and those with little or no credit history, must rely on a third party co-signer when taking out a loan, regardless of the type of loan. Guarantor loans are perfect examples of this type of loan, because they require the signature of a third party a guarantor that will co-sign and be held responsible for the loan until it is paid off. A guarantor is usually required to be a homeowner and usually uses the home as collateral for the loan, but what if the guarantor dies during the term of the loan? How are the responsibilities and specifics of the loan altered when this occurs? The answers are quite simple, but there are a few things to remember should this happen to you.

The Basics of This Type of Situation

When people co-sign a loan for someone, they are responsible for the loan even after death. If you are a guarantor on a loan, regardless of who the borrower is, and you pass away, the courts can go after your estate should the borrower stop making payments. This is one of the many reasons why it is so important to consider all aspects of a guarantor loan before signing on the dotted line. Regardless of the specific situation, co-signing a loan is a serious decision that is not to be taken lightly, for many good reasons. Of course, when a guarantor dies and the borrower is still making regular payments on the loan, everything remains the same. The only challenges come in the case of the borrower ceasing to make payments on the loan itself.

Of course, the specifics of each guarantor loan may differ somewhat, so it is essential that this situation is one that you discuss with the lending institution before obtaining the loan, particularly if you are the guarantor. As with many other aspects of a loan, getting information up-front before the loan is finalized is always an excellent recommendation.

Other Aspects of the Death of a Guarantor

Occasionally, a lending institution will “call” a loan once the guarantor dies. The reason this doesn’t occur frequently is that in this case, the lender often does not get the entire amount owed to them. Since calling the loan can result in default, and sometimes even a bankruptcy of the borrower or guarantor’s estate, most banks will not choose this option. However, each time a guarantor dies and the borrower stops making payments on the loan, it is always possible and in fact, likely that the lender will go after the guarantor’s estate.

Whether you are the borrower or the co-signer of a guarantor loan, it is crucial that you consider all possibilities before you sign the final papers. There are many “ifs” in life, and taking them all into consideration when obtaining a guarantor loan is the smartest thing you can do. As with most other things in life, preparing for potential difficulties can help you both now and in the future.

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