You've got your own home. Your children are grown up.
You're looking forward to a well-deserved retirement.
Your son or daughter wants to buy their own home/car/start their
own business. The bank won't lend them the money, so they come
to you asking if you will go guarantor for them. It's just a
formality they say. The silly bank won't lend them the money
unless they have a guarantor. They really, really need the loan for
this home/car/business. Of course they can meet the repayments with
their new job and their partner will also be paying. Please, pretty
please, just sign. Don't you love me?
What could possibly go wrong?
Well, for a start, you could lose your own home and find
yourself penniless on the street. Unfortunately, it happens a lot.
Those fantastic promises of your offspring to repay the loan
themselves can fold suddenly if they lose their job, their partner
splits, or the new business goes belly up.
Never lose sight of what "going guarantor" means. You
are agreeing in a legally binding document to the bank that you
will pay off someone else's debt if they can't. Think for a
moment: If a bank with all its checks and due diligence won't
lend someone money, why should you? Because that is what in effect
you are doing. You will have to repay the debt if the borrower
It is essential you get independent legal advice before you
agree to go guarantor. There can be a lot of emotional pressure to
sign, but all promises and assurances and "trust me"
appeals don't amount to a hill of beans when it's your home
on the line. It's simple: If you aren't prepared to pay the
debt, don't sign. This is a financial transaction, not a
declaration of family love.
For those who do go guarantor, check everything. Are you
guarantor for one fixed loan or "all monies"? Make sure
the lender can't change the amount without your consent. Check
whether you are asked to provide a mortgage over your own house. Is
the borrower putting up their own security? Don't agree to
loans that are not scheduled to be repaid such as overdrafts or
line of credit - they can go on indefinitely. If the lender
hasn't given you a copy of the contract, an information
statement on guarantees, or if you haven't signed a guarantee
document, or you were incapable of understanding it at the time, in
certain circumstances the guarantee may be unenforceable.
Be extremely wary of going guarantor. The very thought should
send a shiver of fear down your spine.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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