What are My Rights and Obligations as a Guarantor?

A guarantor is a person who is legally responsible for paying back a loan if the borrower fails to make repayments, also sometines called a surety. This may also include additional costs, such as fees, and interest for late payment. A guarantor is not the same as a co-applicant. Unlike a guarantor, a co-applicant is responsible at the outset for the entire loan until it is paid in full.

It is not uncommon for friends or family members to ask someone to be a guarantor under their loan application. For example, a close friend of yours might want a loan from a bank to open her new business and ask you to be a guarantor under the loan. This is usually because the bank requires someone to guarantee the loan. It is vital to receive from the lender a copy of the agreement, which should clearly set out your responsibilities as a guarantor. The lender should also tell you whether it is capped or uncapped.

Usually, a guarantor will be liable for the debt if the borrower fails to pay the loan in accordance with the agreement. There are many reasons why the borrower my fail to repay the loan, such as becoming injured, becoming sick, or experiencing hardship.

However, there are exceptional circumstances where a court may hold that a guarantor is not liable to pay for the debt. For example, if the person can show they did not understand the nature of the document they were signing and that it would be unconscionable to hold them liable for the debt. Other reasons for finding a guarantee unenforceable include circumstances where there is fraud, duress, or undue influence. Without extraordinary circumstances, it is likely that a court will hold a guarantor liable.

If you have been asked by someone to be a guarantor it is important to know your rights and obligations before committing to anything. Obtaining legal advice is the best way to ensure you understand what you are agreeing to and the consequences. A legal advisor may also provide details on how you, as a guarantor, can recover the debt paid from the borrower. Contact PMF Legal to speak with one of our knowledgeable and experienced staff for reliable information.