Loans with a guarantor are full of traps and tricks and for most people they don’t fully understand them. What’s more, people seem to think that if they tear up the loan agreement that somehow ends the responsibility of the guarantor. However, that is not quite the case. When it comes to guarantors, they have a very real legal liability and they are still on the hook so to speak for the loan even if the borrower says it’s their responsibility. Is there any way to reduce the responsibilities of the guarantor?
Enable the Guaranty to Hold Guarantor Only after All Other Remedies Have Been Tried
A lot of lenders launch a bid to retrieve their money from the guarantor after the borrower has missed the first payment. Now, while that is a legal move, they might actually be able to look at a number of other legal remedies first. There are lots of legal remedies that can be taken against the borrowers and they should be done so before the guarantor is put on the firing line. With your guaranty you should look at ensuring there is this type of clause so that the guarantor isn’t put at risk immediately. Guarantor loans and lenders usually go after the guarantor pretty quickly so having this would be ideal to say the least.
Always Specify Which Loan the Guarantor Is Being a Guarantor for
Let’s be honest, if a borrower has several loans already outstanding by the same lender, then it’s vital to ensure the contract specifies which loan the guarantor is being a guarantor for. Now, you might not think that is too important, but it is. What happens if the guarantor’s loan is paid off but another is outstanding and they are held responsible for that? With your guaranty it must say which loan the guarantor is being guaranteed for. All loans with a guarantor must have the guarantor’s loan stated. This will avoid confusion.
Have a Guarantor for a Certain Length of Time
Borrowers who have a five- or six-year loan planned, it might be wise to say after the first one or two, the guarantor is removed from the responsibilities of the loan after that period of time. You can get this done on your guaranty and it’s very important to ensure there is a specific amount of time set out. That will help to reduce the responsibilities of the guarantor. Guarantor loans don’t always have a set period of time for the guarantor but it’s vital to have this. It will help to reduce the impact of the guarantor’s responsibilities.
Limit the Guaranty’s Amount
You can actually set out in the guaranty how much of the loan the guarantor is responsible for. For instance, if someone were to borrow $50,000, the guarantor can be responsible for only $10,000–$15,000. That is possible to do and it’s something you should think about also. Loans with a guarantor can have a guaranty that limits the responsibilities of the guarantor. It’s something which can help in many ways.
Reduce Your Guarantors Responsibilities
Guarantors can be happy enough to sign for a loan for a friend but there are many ways to help reduce their overall risk. That is something you should think about especially if your friend is doing you a big favor. There are lots of simple ways to help reduce their responsibilities and it doesn’t have to be too costly to you either. Guarantor loans can work for you and your guarantor if you reduce their risks and the impact they have.