Risking it for very little biscuit - Are you considering going guarantor?
Are you considering going guarantor? Here's what you need to know.
A guarantor is someone who agrees to be held legally responsible for a borrower's debt in the event that they default on their loan obligation. Guarantees are typically provided by parents for their child's home loan, family members for a loan to a family trust, a director for a loan to a company, or individuals who wish to provide additional security for their partner's loan.
To be considered a suitable guarantor, you will need to demonstrate that you have the capacity to repay the borrower's loan amount. Eligibility can also be improved by demonstrating a stable job with a steady income, a satisfactory credit score and equity in property.
So, what are the risks?
Guarantors expose themselves to high financial risk, for little/nothing in return. Therefore, if you have recently been asked to become a guarantor, it is important you understand your obligations prior to giving your consent. If the borrower is unable to meet their loan repayments, the guarantor will become responsible for any outstanding debt. This could result in serious monetary loss, or even loss of property.
You've been asked to become a guarantor – What's next?
Most financial institutions require Guarantors to obtain independent legal advice before signing any guarantee documents. If you are considering becoming a guarantor, it is important that you always:
· Receive independent legal and accounting advice about the documents you are required to sign;
· Consider all of your options to ensure that you are making the best financial decision for you; and
· Ask all the relevant questions so that you completely understand the documents you are signing.
How can we help?
CPC Lawyers regularly provides advice to individuals who choose to become a Guarantor for another person's loan. By obtaining independent legal advice, you are provided with an understanding of the nature and effect of the loan documents you are required to sign. This
includes understanding the risks involved, particularly the consequences that arise when the borrower defaults on the loan, and the possibility of losing your property and any other valuable assets. This independent legal advice also provides the financial institution distributing the loan with the assurance that you have made a free and informed decision to act as guarantor for the borrower.
CPC Lawyers are proud to be one of few law firms in Adelaide that provide Guarantor advice. Contact us on (08) 7325 0219 today to book an appointment.