Without any language in a loan contract to the contrary, a guarantor has certain rights by law in their relationship with the creditor. Because the laws vary from state to state, it is best to specify the steps the creditor has to take in order for the guarantor to be responsible for the debtor’s commitments. The agreement should state whether and to what extent the creditor must first pursue all other available options before going after the guarantor.
A guarantor is someone who agrees to be responsible for the payment of someone else’s debt. The guarantee is the written promise by the guarantor that the borrower will meet the terms and conditions of the loan agreement. The guarantee is not just a formality so that a friend or relative can get a loan, its’ a big responsibility. It shows you are prepared to pay if the debtor or borrower does not pay. You may be expected to pay the credit provider all the money the borrower owes under the contract on demand, or risk being sued by the lender, even in some cases without having them sue the borrower! This may seem absurd, but remember, you’re the one with the money.
Most people assume the best of the person they cosign for, but you may find that whatever their intentions they may not be able to meet the terms and conditions of the credit contract for some reason or another. You must be prepared to meet your obligation to pay under that circumstance.
Sometimes guarantors can escape an obligation by demonstrating that they didn’t know what they were getting into. Lenders have learnt from this and chances are any guarantee you sign now will be enforceable.
You do, of course, have certain rights. You can specify to the lender that you will only be a guarantor if you can limit the guarantee to a specific amount of money or time period. If the lender feels this is insufficient, they may refuse the borrower the loan, however. Limit your guarantee to the amount lent and the interest and recovery costs and exclude any further advances put forth to the debtor.
The lender will let you know whether the loan requires you to guarantee as secured or unsecured. An unsecured guarantee means the lender doesn’t require any of your property as collateral before giving you a loan. A secured guarantee means you have to give them a lien on some property of yours in order for your borrower to get the loan.
If the borrower fails to pay on time, you as guarantor are responsible for fixing that. That could involve you paying the entire loan off. Be careful when you sign on as a guarantor, as your rights are limited.