Banking & Finance
6. Being a Guarantor
Authors: Staff Legal Eagle
Firm / Chambers:
Last updated: 22 Jun 2015
- Sometimes a relative or friend may be looking to borrow money from a bank or other financial institution but are unable to do so unless they have someone to guarantee the loan for them.
- The person who agrees to guarantee the loan for another person is called the guarantor.
- Before agreeing to become a guarantor you should satisfy yourself that the borrower has the dedication and finances to repay their loan to the bank.
- Being a guarantor means you are responsible for the total amount of the loan if the borrower is unable to repay it.
- There are many consequences following from the borrower's inability to repay a loan.
- As the guarantor you will be responsible for the entire repayment amount plus any interest, fees and charges.
- If you used your own property as security for the loan guarantee you may end up losing the property if you don’t have the money to repay the loan.
- In that case the financial institution may also take steps to have you declared as bankrupt.
- In the event that the borrower doesn’t pay and you also can’t repay the loan amount this will be recorded on your credit history report. It may affect your ability to borrow money in the future or to gain approval for such things as mobile phone plans.
- It is also important to know that being the guarantor does not give you rights to use or own the property.
- Before becoming a guarantor you should think not only about the financial losses that can occur but the pressure that being a guarantor can put on your relationship with the borrower in the event that things do go wrong.
View more Information on Industry Areas