I've given a loan guarantee and the principal has reduced as a result of regular payments. The borrower 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?
No. If your guarantee is for a specific loan, the extent of your liability on the guarantee will diminish with the amounts paid.
If the lender wishes to increase the loan against your guarantee, the financial institution will either have to obtain a fresh guarantee from you or seek your written consent to the continuation of your guarantee for the increased amount.
In the case of overdraft facilities, generally, the guarantor will remain liable up to the limit he or she has guaranteed for and any increase of the limit will require the guarantor's consent.
Reprinted with permission from BankingInfo (A Consumer Education Programme)
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