What is a loan guarantor?
A loan guarantor is someone who agrees to repay a loan if the borrower can't. They act as a backup, helping the borrower qualify for credit or access a larger loan.
What is a loan guarantee?
A loan guarantee is the formal arrangement where the guarantor agrees to repay the loan if the borrower defaults, providing the lender with added security and improving the borrower’s chances of loan approval.
What is a loan security guarantee?
A loan security guarantee is the formal arrangement where the guarantor uses their own property as security for another borrower’s loan. If the borrower defaults, the lender can pursue the guarantor’s property.
Who can be a guarantor?
A guarantor can be anyone who is willing and able to offer adequate security, take on added risk and repay the loan if the borrower defaults. This could be a family member such as a parent, grandparent or sibling, or an unrelated third party.
As a guarantor, what costs would I be liable for?
If the borrower is in default, responsibility for repayment of money owed to the RAA may be transferred to the guarantor. This may include interest and expenses as well as recovery costs.
What happens if the borrower can’t meet their repayments?
If a borrower is unable to meet their repayment obligations and can’t get back on track, the RAA may need to take formal action. This could include issuing a notice requesting payment of the outstanding amount. If the borrower is unable to comply, the full loan balance may become immediately due.
Should the borrower remain unable to repay, we may turn to the guarantor to recoup the debt, which may include interest and recovery expenses.
If the guarantor is unable to repay the debt, there could be serious consequences. We’re committed to working with guarantors to explore alternative solutions, but it’s important to understand the potential outcomes.
What should I consider before agreeing to become a guarantor?
Before agreeing to act as a guarantor on a loan, it's important to seek independent legal advice to fully understand your obligations and the potential risks involved. You should also consider obtaining financial advice to determine whether your liability is limited, and to clarify the conditions under which you can be released from the guarantee. Additionally, you should ensure that you have sufficient assets to cover the debt should you be required to do so.
What information do I need to provide to the RAA when becoming a guarantor?
If you’ve been nominated as a guarantor for a loan application, we’ll send you a Guarantor Application Form to collect some key information. As part of the process, you’ll need to upload a digital copy of your most recent council rates notice. If the property you’re offering as security has a mortgage, you’ll also need to provide a completed and signed Mortgagee Consent Form.
How does the RAA assess if I am a suitable guarantor?
Using the information provided in your Guarantor Application Form, we will assess your financial history and complete a credit check, to determine suitability.
As a guarantor, what information about the loan will I be able to access?
Throughout the life of the loan, you’ll have access to important information related to your obligations as guarantor, including:
- the outstanding balance on the loan and whether any payments are overdue
- whether the borrower has advised the RAA of financial hardship that has led to changes to the loan
- if a formal default notice is issued to the borrower (we’ll also let you know if the borrower continues to be in default).
Will becoming a guarantor affect my future borrowing capacity?
When you apply for a loan in the future, you may need to tell the credit provider about any loans you are guarantor on. This may affect your borrowing capacity, especially if you want to borrow against the property or equipment asset you have provided as security in the guarantee.
Will my credit report be affected?
If both the borrower and the guarantor are unable to pay back the loan per the agreement, it will be listed as a default on your credit report. This may make it harder for you to borrow in the future.
What if I change my mind about becoming a guarantor?
If you have completed our Guarantor Application Form, but have changed your mind about becoming a guarantor, you should advise the RAA via email that you would like to withdraw your application. You can withdraw from a guarantee at any time up until funds are disbursed to the borrower.