Have you been asked to go as Guarantor on a loan?
Written on the 26 February 2021 by Nathan Drew, Fox Finance Group
Being a Guarantor on someone's loan is a legal responsibility, and it is important that you understand the agreement that you are entering into.
We have put together some of the FAQs that we hear from our applicants when they are faced with this option of requiring a Guarantor.
What does being a Guarantor on a loan mean?
The guarantor is the person who agrees to pay for someone else's loan if that person is unable to repay the loan. The Guarantor is always asked to co-sign the loan agreement before it goes through and the lenders may make a phone call to both parties to go over the terms and conditions of the agreement.
What does being a Guarantor on a loan involve?
Who can be my Guarantor?
Most lenders prefer the Guarantor to be a close relative usually a parent, grandparent or siblings. Some lenders will allow extended family members and even ex-spouses to be a Guarantor for your loan.
Does my Guarantor have to be working?
Generally, a Guarantor must be working and have a good current or previous credit history. Guarantors that are also a homeowner are looked at more favourably. They have to be able to meet the loan repayments in the event that the loan applicant defaults on the loan.
What is the Guarantor's responsibilities for the loan?
When you sign your name as a Guarantor of a loan, you are legally responsible for paying back the entire loan if the other person cannot or will not make the repayments. You will also have to pay any fees, charges and interest.
Is having a Guarantor on my loan a good thing?
Overall, a Guarantor loan is a perfectly legitimate way to help someone with a poor credit rating get the finance they need. There is a financial risk involved, especially if you are a Guarantor. However, the level of risk is no higher than it would be from a regular bank loan.
When can the Guarantor stop being the Guarantor?
When the loan is paid out in full. If you have signed the loan agreement and the loan has not been successfully paid out, you cannot stop being someone's Guarantor.
What happens if the Borrower cannot pay for the loan?
Becoming a guarantor for a loan is a big responsibility. It means you are providing a guarantee to the lender that you will repay the debt of the borrower if s/he is unable to do so. If the borrower becomes a defaulter on her/his loan you will be made equally liable for it.
Can the rules differ between a Car Loan Guarantor and a Home Loan Guarantor?
Yes they can. Qualifications may differ between loan types and lenders because home loan Guarantors can be removed once the borrower can service the debt themselves and also, they are mainly Security Guarantors and less likely these days to be Servicing Guarantors.
We hope that this information has helped give you a deeper understanding of what the responsibilities are for a person going as a Guarantor of a loan. If you have any further questions, please don't hesitate to give our team a call on 1300 665 906 for more info.
As with all contracts, it is very important that you read and fully what you are entering into. The information provided here is only a guide and you should always seek your own independent advice prior to entering into any legal contract.
Author: Nathan Drew, Fox Finance Group
About: Managing Director - Fox Finance GroupConnect via: LinkedIn