Tags: Finance. Loans. Loan Guarantor. Money. Financial Tips. Financial Counsellor. Relationship Debt. Free Finance Councilling Brisbane. Bribie Island
WITH PETER DALLIMORE
Peter Dallimore is a volunteer Financial Counsellor at the Bribie Island Neighbourhood Centre
GOING GUARANTOR & RELATIONSHIP DEBT
Going guarantor or allowing someone to use the equity in your property so that they can secure a loan is not something to do without fully understanding the risks involved. As guarantor, you will be responsible to repay the loan in full if the borrower is unable to keep up the payments.
Before going guarantor think about how you will meet the repayment obligations if the borrower can’t. If you are unable to meet the obligations then your property can be sold to make up any shortfall. I have assisted several clients who have found themselves in this situation. Going guarantor can affect your credit score, credit rating and ability to borrow in the future in the event that you need additional funds.
You will need to tell your credit provider about any loans that you are a guarantor for. The credit provider will take into account the fact that you may have to make the payments on the loan that you have guaranteed in addition to payments on a new loan. This may stop you getting a new loan.
If you and the borrower can’t keep up the repayments the loan will be listed as a default on your credit report making it harder to borrow money in the future. Before going guarantor you should ensure that you are fully aware of the obligations that you will assume under the guarantee. These include what assets of yours are at risk if the borrower defaults and how long does your obligation remain in place.
For example, if you guarantee an overdraft your obligation may go on indefinitely. You should also find out whether your guarantee is for a fixed amount or for the total amount of the loan. Owning or buying a property under a joint tenancy is another form of guarantee. Property ownership options will be discussed in more detail in another article but under a joint tenancy, each party assumes responsibility for 100% of the debt in the event that the other party fails to meet their repayment obligations.
This is a relatively common occurrence when relationships break down. One party “walks away” leaving the other with 100% of the debt. It can place considerable stress on the person attempting to meet 100% of the repayment obligations in order to retain a property. If you are the director of a company you may be requested to provide a guarantee to support your company’s obligations.
Again, this is not something to be entered into lightly. You should understand the full extent of your obligations and their impact on your financial situation should the guarantee be called on. So if you are considering going guarantor check out moneysmart.gov.au for detailed information on the issues to be considered and the risks involved. It is probably best to seek independent advice before signing up.
If you have concerns about your joint tenancy arrangement seek legal advice. Peter Dallimore is a volunteer Financial Counsellor at the Bribie Island Neighbourhood Centre. He can be contacted via email at [email protected] or you can make an appointment to see him by calling 3408 8440.
The Financial Counselling service is free.