Did you know that you can stop being a guarantor for a loan? See how – The Economic Journal


As a rule, a guarantor only ceases to be when the debt is extinguished. However, while difficult, there are some situations where you can relinquish this responsibility. In this article, we explain to you all about how to stop being a guarantor.

Unfortunately, if you are a guarantor of a credit you can not simply give up on being. Being in this position, will be called to pay the debt by breach of the credit agreement by the debtor.

Being a guarantor represents a high responsibility – it is a very common guarantee of obligations in housing credit agreements and lease agreements – and must be a very thoughtful decision.

If you have made that decision, but are sorry, know that there is a way to get around the situation. Find out in this article how to stop being guarantor.

How to stop being a guarantor?
A guarantor is someone who agrees to take responsibility for another person's debt if they can not pay. As a rule, a guarantor is requested by financial institutions when they find that there is a risk of default by the client and, in this sense, they need guarantees to reduce the risk.

As a guarantor, you are called to pay the loan in the event of breach of the debtor's contract and, if you are unable to pay it, you may even, in a more extreme scenario, see your assets seized.

Being a guarantor represents a fairly high responsibility since you are taking on debt that is not yours. However difficult, there is a way to renounce this responsibility.

Renegotiation of debt
You can try to renegotiate the terms initially agreed upon with all parties involved: guarantor, principal lender and debtor. However, in order for renegotiation to be viable, a new guarantor must be found or other collateral such as, for example, a mortgage on real estate.

Unfortunately, this is extremely difficult. At the outset, if you are thinking of giving up being a guarantor, it is because you foresee a failure on the part of the debtor to fulfill the loan. It is unlikely that anyone in this context of renegotiation is interested in taking their place as guarantor.

Another factor to be taken into account is that the creditor – who, as a rule, is a financial institution – may show some reluctance to agree to the possibility of renegotiating the terms of the credit agreement initially stipulated.

It is also difficult, in practice, to obtain other safeguards which may safeguard the creditor and with which the creditor agrees.

You may also waive your responsibility to be a guarantor if there have been changes to the initial credit agreement between the debtor and the creditor. For example, imagine that there was a renegotiation of the spread that led the financial institution and the debtor to sign a new contract. Since, as guarantor, you have signed a contract under the previous terms, you have no obligation to remain a guarantor in the light of the new conditions.

Better safe than sorry
It is important to emphasize that not being a guarantor is no easy task. When it comes to taking on this responsibility, all care is few and you should make sure you have the maximum protection possible when you sign the credit agreement.

Make sure that there is a paragraph in the contract that gives you the benefit of prior excussion. This is a right assigned to the guarantor that protects him against the default of the debtor, making this the first target of attachment and not the guarantor. In the event that the debtor has no assets to be seized, then the guarantor must be responsible for the debt.

This right can only be exercised if it is contemplated in the credit agreement, otherwise the guarantor is the first target of attachment in the event of default on the part of the debtor.

In order to help the principal debtor through potential credit default, and because he will also be impacted by this situation, it is important for the guarantor to follow closely the process and offer help or solutions if the scenario begins to become less favorable .

A delay in the payment of benefits may be due, for example, to the fact that there are other loans which the debtor is unable to cope with. Consolidating all credits into one can be a viable solution to ease the effort rate a bit and avoid default.

Being a guarantor will prevent you from getting financing for yourself?
You can apply for a loan by securing a loan. However, it is important to ensure that there is no possibility of default on the part of the debtor to whom it has been linked.

One of the risks that he runs when he agrees to be a guarantor of someone is to take his impaired reputation to the Bank of Portugal. If the principal debtor of the claim defaults, the name of the guarantor is also registered, which can be difficult in the future when you need to apply for a loan.

If this happens, this information is included in its Credit Responsibilities Map, a document of Banco de Portugal (BdP) that contains all the credit history of Portuguese consumers and can be consulted on the BOP's own website.

This document is reviewed by lending institutions to determine the risk of lending money, so it is important that you keep your credit history positive so you do not face difficulties in the future.

If you are a guarantor and the principal debtor to whom you have bonded has the payments all day and has not incurred in any delay or failure of the benefits, you will have no difficulty in requesting financing from the outset.



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