Things to consider when going guarantor
Role of the guarantor
The guarantor is the person who agrees to pay for someone else’s loan or credit contract if the borrower cannot afford to repay the loan.
Why is a guarantor required
Usually a guarantor is required because the lender is concerned that the borrower is unable to keep up their loan repayments (due to bad credit history or no credit history) or the borrower is under the age of 18.
Thinking of going guarantor?
It is important that you fully understand the responsibilities and implications of taking on the role of guarantor. If the borrower doesn’t pay the loan, the lender will come knocking on your door and look to take what they can from you to recover their debt. This could mean losing your car, valuables or worse losing your home.
Think again
If you are seriously considering going guarantor, consider the following:
can you afford the repayments if the borrower can’t?
can you afford to risk your credit record?
can you afford to lose the friendship or relationship if things go terribly bad?
can you afford the stress?
Still going ahead?
There may be good reasons for going guarantor. Whatever the reasons may be, be sure to lower the risk:
Have a formal discussion with the borrower (and their partner if relevant) and outline all of the consequences. Ask them for their budget and how they intend to repay the loan, what contingences they have in place to ensure they don’t miss a payment, what insurance they have in place if the unexpected happens.
Seek independent legal advice - have the contract agreement reviewed, and possibly an agreement drawn up between you and the borrower.
Ensure you understand the property that is being listed as security for the debt and the lenders’ power to enforce this.
Ensure you understand the fine print, and that you are only guaranteeing this loan, not future loans. Look for an ‘unlimited deed of guarantee’ clause.
Understand your rights as a guarantor under the Credit Contracts Consumer Finance Act (CCCFA).
Don’t be pressured into signing anything until these things have been addressed. You need to fully understand the consequences if things go wrong.
The Consumer Protection website has a lot of very useful resources and explains your rights as a guarantor. We encourage you to make yourself familiar with your rights before signing any contract agreements.