KEY OBLIGATION AND RESPONSIBILTY AS A BORROWER & GUARANTOR
When you agree to take out a loan, it comes with a lot of obligations and responsibilities. While you enter into a legal contract with lender, it meant you fully understand this contract and agree to meet your obligations and responsibility by repaying the loan according to the contract.
What are the borrower’s key obligation and responsibilities under a loan contract?
§ The borrower must be aware of the type of loan and the use of the money for a particular purpose.
§ The borrower is obliged to repay the principal loan amount, interest, fees, any costs and expenses in relation to the loan agreement which is set out clearly in the loan contract.
§ The loan agreement may contain other covenants, which is basically promises by the borrower to do or / and not to do certain things.
The consequences of ignoring your loan obligations.
§ The total amount payable may become higher with the overdue interest and legal fees.
§ Your lender has the right to take court action against you to recover the balance of the debt.
§ Your lender is entitled to take possession of your assets and sell the asset to apply the proceeds against the outstanding balance of the loan.
§ If your loan application is personally guaranteed by someone, the lender will usually transfer the demand for payment to them.
§ Your credit standing may deteriorate with bad payment behaviour, new borrowing could be impossible or costly.
You can probably prevent these consequences by being proactive and taking the steps outlined above. If your financial difficulties are serious and you cannot resolve them yourself, then you should contact the lender to work out a new schedule of repayment plan.
What does it mean to be a guarantor for a loan? A guarantor is someone who agrees to be responsible to pay back the loan if the borrower is not able to repay back the debt to the lender. Find out about what a guarantor is liable for before deciding whether to take on this commitment.
Before you agree to become a guarantor, think carefully and asking yourself the following:
§ What type of loan are you the Guarantor for?
§ Are you aware and understand of the loan contract details?
§ Can you afford and are you willing to repay someone’s debt? Even once you repay his debt, you may not be able to recover the money from him/her.
§ Is the borrower able to repay the debt?
§ Are you aware of the borrower financial standing?
What are the Guarantor’s key obligation and responsibilities under a loan contract?
Principal Debtor Clauses – These clauses make you the guarantor liable as if you had borrowed the money yourself. In the event where borrower may escape liability, you as guarantor would remain liable.
Payment on demand – The lender can seek repayment from you without having to prove it has attempted to recover the debt from the borrower.
Restructuring – The loan may be restructured at the lender’s discretion, but this does not release you from his/her obligations.
In a nutshell, agreeing to be a guarantor is a serious commitment. Think carefully before agreeing. If you cannot settle the debt, your credit report will be affected and it might be difficult for you to borrow in the future.