If You're a Guarantor and Payments Stop: What to Do Next

Agreeing to be a guarantor means accepting a legally binding obligation to make payments on behalf of a borrower if they fail to pay. This is a significant commitment, and when the borrower stops paying, the guarantor's position changes materially. The legal framework governing guarantor loans in the UK is defined primarily by the Consumer Credit Act 1974 and the Financial Conduct Authority's Consumer Credit Sourcebook (CONC), along with specific FCA guidance in FG 17/1.

This guide explains how the guarantor system works in the UK, what the law says about when and how a lender can pursue a guarantor, what protections exist, and what timelines apply. It covers guarantor obligations for both consumer credit agreements and, where relevant, rental tenancy guarantees. It does not provide financial advice.

A guarantor loan is a regulated consumer credit agreement where an individual — the guarantor — agrees to make payments if the borrower defaults. In the context of regulated agreements, a guarantee can be treated as "security" for CCA procedural purposes, which triggers specific requirements about how lenders must act before pursuing the guarantor. If the borrower stops paying, the lender has a legal pathway to pursue the guarantor for payment, but that pathway is governed by specific rules, timelines, and protections.

The most important things to understand are: the lender cannot simply take money from the guarantor without following a defined process; the guarantor must be notified before any payment is taken; and there are minimum waiting periods the lender must observe. FCA guidance describes several approaches firms may use to seek guarantor payment, with a strong focus on clear notice and avoiding enforcement without proper process.

Often the guarantee itself is not shown on the guarantor's credit file, but reporting practices vary between lenders and credit reference agencies. Negative markers can appear if the account is reported in a way that links to the guarantor or if court action occurs.

The Legal Foundation

Guarantor loans are regulated under the Consumer Credit Act 1974 and fall under the jurisdiction of the Financial Conduct Authority. The FCA's Consumer Credit Sourcebook (CONC) contains specific rules for guarantor lending, including CONC 5.2.5R (affordability assessment of the guarantor), CONC 6.2.1AR (assessment before credit increases), and CONC 4.2.22R (pre-contractual explanations).

In the context of regulated consumer credit agreements, a guarantee can be treated as "security" for CCA procedural purposes. This treatment is important because it can trigger specific procedural requirements before the lender takes certain steps against the guarantor.

What "Enforcement" Means

The FCA's view, set out in FG 17/1, is that "enforcement" of a guarantee includes demanding payment from the guarantor or taking payment via continuous payment authority (CPA) without appropriate prior notification. However, enforcement does not include a guarantor voluntarily making a payment following notification, or a lender making a request for payment that is clearly not a demand.

This distinction matters because Section 87 of the Consumer Credit Act 1974 requires that a default notice be served on the borrower before the lender can take certain steps — including termination, acceleration, or enforcement of security — following a breach of a regulated agreement. If the lender's next step amounts to enforcement of security under the CCA framework, a compliant default notice is typically required. The interaction between guarantees and the "security" provisions is legally complex, and the FCA acknowledges that questions of interpretation are ultimately for a court to determine.

Approaches to Seeking Guarantor Payment

FCA guidance (FG 17/1) describes several approaches firms may use when seeking payment from a guarantor after the borrower has missed a payment. These are not a rigid statutory framework, but reflect the FCA's expectations around notification and proper process:

• The first option is to obtain the guarantor's express consent to make a payment. If the guarantor agrees voluntarily, the FCA does not consider this "enforcement" of the security.
• The second option is to pre-notify the guarantor of the borrower's breach and the lender's intention to take payment via CPA or direct debit, then wait at least five working days. According to FCA guidance (FG 17/1, paragraph 2.14), this five-working-day period is what the FCA considers a "reasonable period." If the guarantor does not object or cancel the CPA within this period, the FCA would not regard subsequent use of CPA as "enforcement." The lender must clearly inform the guarantor of the nature and extent of the breach, the amount overdue, the intention to take payment, the likely timing, and the guarantor's right to cancel the CPA.
• The third approach is to issue a formal default notice under Section 87 of the Consumer Credit Act 1974 and wait the statutory minimum of 14 days. This approach is the most legally certain because it follows the full statutory process for enforcement of security.

The FCA guidance notes that the first two approaches could potentially be challenged in court, whereas the third follows the established statutory framework. The FCA also states that questions of interpretation of legislation are ultimately for a court to determine.

Notification Requirements

Under Section 86 of the Consumer Credit Act 1974, a copy of any default notice served on the borrower must also be served on any surety (including a guarantor). Failure to comply with these surety-notification requirements can affect enforceability and may require court involvement; the precise consequences depend on the circumstances.

The default notice itself must specify the nature of the breach, the action required to remedy it, and the date before which that action must be taken. That date must not be less than 14 days after the date of service of the notice, as required by Section 88 of the Act. This 14-day minimum was increased from 7 days by the Consumer Credit Act 2006.

What Happens to the Guarantor's Credit Record

Often the guarantee itself is not shown on the guarantor's credit file, but reporting practices vary between lenders and credit reference agencies. A credit check is typically carried out when becoming a guarantor; whether it is recorded as a hard or soft search depends on the lender. Negative markers can appear if the account is reported in a way that links to the guarantor, or if court action occurs.

If a lender issues a court claim and obtains a County Court Judgment against the guarantor, the CCJ will appear on the guarantor's credit file. A CCJ remains on the credit file for six years from the date of judgment. After six years, the CCJ disappears from the credit file and cannot be re-registered. This six-year period applies to England and Wales.

In most cases, the guarantor may also be treated as having a "financial association" with the borrower by credit reference agencies. The extent to which CRAs record financial associations varies, and this may affect the guarantor's ability to obtain credit independently.

Several specific numerical thresholds and timelines govern the guarantor loan process. Each of these is defined in legislation, FCA rules, or court rules.

• There is no minimum period before a lender may issue a default notice, and no minimum number of missed payments required. The FCA confirmed in FG 17/1 (paragraph 2.21) that there is no requirement to serve an arrears notice before issuing a default notice, or to wait until two payments have been missed. The default notice must allow at least 14 days after service before the lender can take further action.
• Once a default notice is served, the creditor cannot take action before the date specified in the notice, and that date must not be less than 14 days after the date of service.
• If the lender chooses the pre-notification route instead, the FCA expects at least five working days' notice before taking payment via CPA or direct debit.
• If the guarantor wishes to complain about the lender's conduct, the lender has eight weeks to respond to the complaint. If the lender rejects the complaint or does not respond within eight weeks, the complaint can be escalated to the Financial Ombudsman Service. The complainant then has six months from receiving the lender's Final Response Letter to refer the complaint to the FOS. The FOS may accept referrals after six months in exceptional circumstances, such as ill health.
• If the lender pursues court action, the defendant (the guarantor) has 14 days to respond to the claim form. This can be extended to 28 days if the defendant acknowledges service. If the defendant does not defend the claim, the claimant may obtain default judgment.
• A CCJ remains on the credit file for six years from the date of judgment, in England and Wales.
• For rental tenancy guarantees specifically, a landlord may serve a Section 8 notice under Ground 8 of Schedule 2 to the Housing Act 1988 when the tenant has two months' rent arrears (or eight weeks for weekly tenancies). If the tenant pays off part of the arrears shortly before the hearing, this ground can no longer be proved.

Number of Missed Payments

One of the most frequent misunderstandings is the belief that a lender must wait for several missed payments before contacting the guarantor. This is not the case. There is no statutory requirement for a minimum number of missed payments before the lender can issue a default notice or begin pursuing the guarantor.

Credit File Impact

Another common source of confusion is the relationship between being a guarantor and the guarantor's own credit record. Many people believe that simply being named as a guarantor will automatically appear on their credit file. Often the guarantee itself is not shown, but reporting practices vary between lenders and credit reference agencies. Negative markers can appear if the account is reported in a way that links to the guarantor, or if court action — such as a CCJ — occurs.

"Asked to Pay" vs. "Forced to Pay"

People also frequently confuse "being asked to pay" with "being legally forced to pay." The FCA draws a clear distinction between voluntary payment following notification and enforcement of the security. A request for payment that is clearly not a demand is not treated as enforcement under FCA guidance.

Cooling-Off Rights

There is also confusion about cooling-off rights. Section 66A of the Consumer Credit Act 1974 provides a 14-day cooling-off period for regulated credit agreements, but these rights apply to the borrower's regulated agreement. The guarantor's position is different and fact-specific; whether and how cooling-off rights apply to the guarantee itself is not clearly established in primary legislation.

Affordability Checks

Finally, many guarantors are unaware that the lender is required to assess the guarantor's financial situation before the loan agreement is entered into. Under CONC 5.2.5R, firms must assess the potential for the guarantor's commitments to adversely affect the guarantor's financial situation. This assessment must be "reasonable" and consider "sufficient information." If this assessment was not properly conducted, the guarantor may have grounds for complaint.

Borrower Enters Insolvency

In most cases, if the borrower enters an Individual Voluntary Arrangement (IVA) or bankruptcy, this does not extinguish the guarantor's liability. The guarantor remains liable for the full remaining balance. An IVA writes off the borrower's liability, not the guarantor's. However, the guarantor may have separate grounds to complain if the original loan was unaffordable.

Rental Tenancy Guarantees — Renewals and Extensions

Rental tenancy guarantees operate in a different legal domain from consumer credit guarantor loans, and the specific terms of the written guarantee agreement are central to determining the guarantor's position. In many cases, the guarantee does not apply to a new tenancy (renewal or extension) unless the guarantor agrees to continue. However, under an Assured Shorthold Tenancy, if notice is not given, the tenancy may continue as a statutory periodic tenancy, and the guarantor's position will often depend on the written guarantee terms and execution formalities. This is an area where agreement terms vary significantly.

Execution Formalities

The enforceability of a guarantee can depend on whether it was correctly executed. For example, if a guarantee is signed after the tenancy agreement has been signed, it may need to be executed as a deed with all necessary formalities; there is case law in England and Wales where courts have struck out claims on this basis, though legal interpretation may vary. Where there is more than one guarantor, it is often the case that all joint guarantors must sign the agreement for it to be enforceable, though this depends on the written terms and execution formalities. A guarantee may also be unenforceable if signature requirements — such as witnessing or Companies Act 2006 formalities — were not properly followed.

Unfair Terms Protection

Under the Consumer Rights Act 2015, guarantors are, in most cases, protected from unfair terms in guarantor agreements. Any term deemed unfair by a court is not legally binding. This protection applies to consumer contracts; business-to-business guarantees may be treated differently.

Failure to Serve Default Notice on Guarantor

If the lender serves a default notice on the borrower but fails to serve a copy on the guarantor as required by Section 86 of the Consumer Credit Act 1974, this can affect enforceability and may require court involvement. The precise consequences depend on the circumstances, but this is an important procedural safeguard for guarantors.

Pre-Contractual Explanations

Under CONC 4.2.22R, lenders are required to provide an adequate written or oral pre-contractual explanation to the guarantor, covering the circumstances in which the guarantee may be called on and the implications for the guarantor. An independent third party, such as a lawyer or credit broker, can also provide these explanations.

When a borrower stops making payments, the guarantor's experience will depend on which approach the lender takes. If the lender seeks express consent, the guarantor will receive a communication asking them to agree to make a payment. If the lender follows the pre-notification approach, the guarantor will receive notice of the borrower's breach, the amount owed, and the lender's intention to take payment, with at least five working days before payment is taken. If the lender issues a formal default notice, the guarantor will receive a copy and will have at least 14 days before the lender can take further action.

In all cases, the guarantor is not obliged to pay anything until they have been asked or a demand has been made. The guarantee becomes active only upon the borrower's failure to pay, and the lender is expected to follow a clear process with appropriate notice before collecting from the guarantor.

If the guarantor believes the lender has not followed proper procedures — for example, if no default notice was served on the guarantor, if the required affordability assessment was not conducted before the loan was agreed, or if pre-contractual explanations were not provided — there is a formal complaints process. The lender must respond within eight weeks. If the lender does not resolve the complaint, the matter can be escalated to the Financial Ombudsman Service within six months of receiving the Final Response Letter.

If the lender pursues court action and obtains a County Court Judgment, the lender may then apply for enforcement measures. After judgment, enforcement options may include warrants or writs of control and charging orders, subject to court rules and fees.

The debt itself, and any CCJ, will remain on the credit file for six years from the date of judgment in England and Wales.

• Legal Process: A guarantor loan is a regulated consumer credit agreement. In the context of regulated agreements, the guarantee can be treated as "security" for CCA procedural purposes, meaning the lender must follow proper legal processes to enforce it.
• Notification: FCA guidance describes several approaches for seeking payment, such as obtaining express consent, pre-notifying with at least five working days' notice, or serving a default notice with a minimum 14-day waiting period.
• Default Notices: A copy of any default notice must be served on the guarantor under Section 86 of the Consumer Credit Act 1974. Failure to do so can affect enforceability.
• Credit Impact: Often the guarantee is not shown on the credit file, but negative markers can appear depending on reporting practices or if court action (like a CCJ) occurs.
• Lender Obligations: Lenders must assess the guarantor's financial situation (CONC 5.2.5R) and provide pre-contractual explanations (CONC 4.2.22R).
• Insolvency: If the borrower enters insolvency, the guarantor usually remains liable for the full balance.
• Complaints: Complaints can be made to the lender (8-week response time) and escalated to the Financial Ombudsman Service.