In some circumstances, a bank may request an applicant find a guarantor for their finance arrangement (including credit cards, personal loans, home loans etc). A guarantor is someone who legally agrees to repay the loan if the borrower defaults (stops making payments).

Before you agree to accept the position of guarantor, there are a few things you should know:

A guarantor agreement is legally enforceable

Many people sign as a guarantor for a relative or friend without completely understanding the financial and legal obligations of the arrangement. Being a guarantor is a big responsibility. The bank or financial institution can hold you liable for the debt which means they can repossess your assets (including your home and/or car) if you're unable to make repayments.

You can change your mind after you sign

You are entitled to change your mind about your decision to act as guarantor:

Anytime before the borrower receives the money under the contract
During the contact period if the lender modifies the contract terms affecting your liability of the contract

To withdraw as a guarantor, you must submit an application in writing to the lender.

You can limit the amount of money you guarantee

On a continuing line of credit (such as a credit card), you can write to the lender and request to limit your liability as guarantor on the debt. For example, you might choose to limit your agreement to $3,000 on a $5,000 credit card. If the borrower fails to pay, you're only legally responsible for $3,000.

You cannot limit your liability on a fixed credit loan (such as a home loan, car loan or personal loan).

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