A guarantee is a promise by a person (guarantor) to settle a debt or fulfil the promise of someone else.
Guarantees are required by a bank or other lending institution to ensure that the liabilities of a borrower will be met. They are useful financial tools and are commonly used across a range of transactions. However, guaranteeing someone else’s debt can expose you to significant risk and it is vital that you understand the implications of what you are entering into.
Before agreeing to act as a guarantor, the first question a potential guarantor should always ask is why is a guarantee required? This may be the first indication that the lender has concerns about the ability of the borrower to repay a loan.
If you do decide to enter into a guarantee, be aware:
Guarantees can be a complex area, and legal advice must be sought before entering into them. Additionally, if you are already a guarantor and you wish to discuss your position, we strongly advise you contact your lawyer.