Guarantors

Are you willing to pay off someone else’s debt?

If a friend asks you to be a guarantor for their debt, be very cautious. This means that you agree to pay back the debt if the borrower can’t – or won’t.

If the borrower doesn’t pay the loan, the credit provider can take legal action against the guarantor. Some people who have gone guarantor have found themselves having to pay back the loan, in full, as if it was their own. It is then left for the guarantor to try to recover their money back from the borrower.

Over time this has caused the break up of many long-term friendships.

The best advice is to obtain independent legal advice before you agree to be guarantor; many lenders have this as a requirement, before you sign.

A risky guarantee – a case study

Greg spent a lot of time looking for a used car and finally found one that suited him. The lender wanted Greg to provide a guarantor before giving Greg the loan. Greg asked his sister Susan if she would go guarantor for him. Susan was reluctant at first but then agreed as long as Greg took out Consumer Credit Insurance in case he lost his job.

A couple of months later Greg did lose his job. He didn't keep up with the repayments and was soon approached by the lender wanting money. Greg didn't reply to the lender who then sent default notices to both Greg, as the borrower, and Susan, as the guarantor. On receiving the notice, Susan spoke to Greg who told her everything was okay.

Some months later, the lender approached Susan. She found out that the Consumer Credit Insurance had only covered three of the payments (this was stated in the insurance policy). No repayments had been made in several months and enforcement expenses had been added to the debt. To avoid court action, Susan had to take over repayments of the loan.

Susan was not happy!

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