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A guarantor is a party that says I will repay a loan if the borrower can’t.
Guarantees are very dangerous documents as they are written by the lender to give them” all the power”. For example many of them are written in a way that places no requirement on the lender to prove default before acting under the document. In addition they are often written so that multiple guarantors are joint and severally responsible for the entire debt, namely a lender may act against one guarantor for all the debt rather than just a share. Some Guarantees can be worded to mitigate risk by limiting the liability to a specific amount or portion of the debt.
A liability for somebody else’s debt may also limit your own ability to borrow as the debt may be secured by way of Mortgage over your assets and lenders may included responsibility for the repayments in their debt servicing assessment.
In summary agreeing to act as Guarantor for other parties debt should be decided after you have made your own decision that the borrower can and will make the loan repayment and if not what will be the outcome and effect on your financial position. Then seek qualified legal advice to explain your obligations before you agree to act as guarantor and most responsible lenders will insist on this as a requirement.
Call Your Local Finance mortgage broker on 1300 787 665 to discuss your options
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