What should I know before being a loan guarantor? Why do I need a guarantor for a loan?

Financial institutions may require guarantees to enhance the credit standing of prospective borrowers, thus enabling them to obtain financing.

Many people think that a guarantor gives a reference of the good character of the borrower. They do not realize that they are legally bound to pay back the loan if the borrower cannot or will not pay.

The following knowledge base of articles provides information on the details and implications of guarantees given by individuals and aims to increase public understanding on guarantees. It guides you on the legal requirements, rights and liabilities of a guarantor as well as highlights the important issues that a person should be aware of before agreeing to become a guarantor.

Contents

• What is a guarantee? Why do banks need a guarantee?
• Who can be a guarantor?
• What are the rights of a guarantor?
• What are the liabilities of a guarantor?
• What are the limitation of actions against guarantors? When will your liabilities as a guarantor be discharged?
• What are the do's and don'ts of being a guarantor?
• What are the different types of bank guarantees? What should a guarantor know?
• Guarantees are normally given in favour of the financial institution and it is normally a standard document written with legal terminology. I do not understand them. What do I do?
• I have given a loan guarantee and the principal has reduced as a result of regular payments. The borrower has approached the bank for an increase in facilities which is within the amount of the guarantee signed by me. Am I liable for the increased amount?
• Does my signature of guarantee have to be witnessed? What should I do if I am not agreeable to some of the terms in the contract of guarantee?
• How do I withdraw as a loan guarantor?
• Can I agree to be a guarantor for only a specific period of time?
• Can I be made a bankrupt in the event that the borrower does not repay his or her loan to the financial institution?
• Will my liability as a guarantor be discharged upon the death of the borrower?
• If there is more than one guarantor and each of them came to the bank at different times to sign the guarantee, how should we sign?
• I don't read or write English. Can I execute a guarantee in the English language?
• Can I be a guarantor for a loan taken by my spouse or child?
• If I decide to be a guarantor, do I have the right to be informed of the status of the borrower's account?
• Is there a maximum age to be accepted as a guarantor?
• What if I am not agreeable to the changes made in the terms and conditions to the loan granted to the borrower after the contract of guarantee has been signed?
• Can a bank take legal action against the borrower and guarantor at the same time without exhausting all means to go after the borrower first?

Reprinted with permission from BankingInfo (A Consumer Education Programme)

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