Before you sign that guarantee
A personal guarantee, signed on behalf of someone else can be the worst financial decision that you ever make.
Upon signing a personal guarantee, where the loan becomes unpaid, goes into default or where the original borrower is unable or unwilling to repay it, you are responsible for the outstanding loan balance, even where you’ve done nothing wrong. A personal guarantee means that everything falls back to you, and generally you have no ability to seek a resolution from the original borrower.
Removing a personal guarantee is almost impossible unless the loan is re-financed or where you personally become the lender, in that you buy the loan from the original lender. Once you have signed the documents, you are stuck. We often see after divorce where ex spouses remain liable for loans, especially car or personal loan agreements, this can complicate an already complicated process.
Prior to signing the personal guarantee, it is important to get advice, to understand what you are agreeing to and more importantly what will happen if the loan goes into default.
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