Being a guarantor for a loan

Being a guarantor means being responsible for paying back the whole loan, in the case that the borrower can’t. Lenders may sometimes ask for a guarantee if they don’t want to lend money to an individual alone. However, it’s important to consider the risks of being a guarantor.

Risks

If the borrower isn’t able to keep up with the repayments, you’ll have to pay the whole loan including interest. If you can’t pay it, the lender can take your assets that you’ve used as security.

Being a guarantor means that lenders may not want to lend you money.

If you or the borrower cant make repayments, it will do on your credit report, making it harder for you to borrow in the future.

You might also want to consider how your relationship with the borrower may be affected as well.

Understanding the contract

Ask for a copy of the contract before signing a guarantee, and ask them any questions you have about it.

Calculate the entire loan amount you’ll have to pay (including interest, fees, etc.), if the borrower can’t make any of the repayments, to see if you can afford it. You could also guarantee a fixed amount, to be safer.

Check if you have to use an asset as security, that the lender can take if the repayments can’t be made.

See how long the loan term is before making a decision. A longer loan term means more interest.

If it’s a business loan, find out as much as you can about the contract, and the business itself, such as if it’s financially healthy.

 

If being a guarantor doesn’t go as planned, you can find out how you can get help here.

Reach out to us for any further help if needed!

All information was collected from moneysmart.gov.au