WHO IS A GUARANTOR? A guarantor is a party who agrees to be responsible for the payment of
another party’s debts. WHAT IS A GUARANTEE? A guarantee is a written promise by you (the guarantor) that the person who
is obtaining credit (the debtor / borrower) will keep to all the terms and
conditions of their contract (the credit contract / loan agreement). THE GUARANTOR IS RESPONSIBLE A guarantee is not just a formality to help a friend or relative obtain
credit. On the contrary, being a guarantor is a big responsibility. It means
that you are prepared to pay if the debtor / borrower does not. You may need to
pay the credit provider all the money owing under the contract as soon as it is
asked for. Often the lender will sue you without suing the debtor / borrower. Many people believe that the friend or relative for whom you “go guarantor”
would never do anything to make the credit provider enforce the guarantee.
Unfortunately, your friend or relative may suddenly find that he or she cannot
meet the terms and conditions of the credit contract because of unemployment,
illness or any other reason. To “go guarantor”, you must be prepared to pay and you must understand
your obligations as a guarantor. GUARANTOR’S OBLIGATIONS If the debtor / borrower defaults in payment or in other obligations to the
lender, the guarantor would be liable to make good that default which could
involve all amounts owed by the debtor / borrower to the lender and substantial
arrears of interest. CAN GUARANTORS ESCAPE THEIR OBLIGATIONS? Over recent years there has been significant press about guarantors who
escape their obligations under guarantees. This was generally on the basis that
they were able to demonstrate to a court that they did not understand what they
were doing when they gave the guarantee. Lenders have learnt many lessons from those court cases and you should assume
that any guarantee you sign will be enforceable and that any security given by a
guarantor will be enforceable. Lenders may require guarantors to get legal advice or financial advice or
both. Lenders do this to reduce the risk of guarantors being able to escape
their liabilities by claiming they did not understand the legal ramifications or
the financial ramifications of giving the guarantee or giving any security in
support of the guarantee. Guarantors can also sue the debtor / borrower if the guarantor has been
obliged to pay out under his or her guarantee.
Read on about
Guarantor's Rights & Obligations.
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