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Guarantor

Definition of 'Guarantor'

A guarantor is someone who agrees to be liable for a debt if the person who took out the credit facility fails to repay on time.

Guarantors are ‘jointly and severally liable’ which means that the lender can look to either, as it chooses.

For this reason, you should never enter into a guarantee lightly. If things go bad, chances are that you will be the easiest target for the lender’s recovery team, rather than the original borrower.

A guarantor has the right at any time to ask the lender how much reliance is held on the guarantee, but not much more.

The lender may ask at the outset that the guarantor gives some security to support the guarantee (such as a mortgage over a house), but this is rare, most guarantees are ‘unsupported’ – i.e. unsecured.

The terms of a guarantee are harsh. Even if the lender has other security, it may decide that is still easier to pursue a guarantor than to realise security.

If you are persuaded to give a guarantee, think about asking for your liability to be limited. Otherwise you may end up paying for the lender’s administrative and recovery costs, in addition to the original loan, which may be substantial.

If the guarantee is ‘called up’ – which means that the lender makes a demand to you to pay, think about offering a lower sum than is due, in full and final settlement. Lender’s aren’t always unreasonable and might accept a lesser sum if paid in full now, rather than receive the full amount over a long period.

In summary, best avoided.

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Credit Jargon Starting 'G'

Credit Jargon Starting 'I'

Credit Jargon Starting 'J'

Credit Jargon Starting 'L'

Credit Jargon Starting 'M'

Credit Jargon Starting 'S'

Credit Jargon Starting 'T'

Credit Jargon Starting 'V'

Credit Jargon Starting 'W'

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