Have you ever been asked to guarantee that you will, if needs be, pay for someone’s debt? This is not uncommon, particularly amongst families and friends who often look to the people closest first to become the guarantors of some debt. This might be because they wish to start up a new business and the bank loan requires someone guarantee the loan. It could be that they are entering the property market, and the bank loan requires a guarantee that someone will pay up in the event that the borrower can no longer meet its financial obligations. In short, a guarantor is someone who agrees to become responsible for the financial debt of another party.

The Guarantee

A guarantee is essentially a promise made by one party (the guarantor) to another party (the creditor) that the guarantor will pay the debt in accordance with the terms of the loan agreement or lease agreement, if the borrower cannot meet its financial commitments and defaults on the loan repayments. If you find yourself in this position, you should seek legal advice as soon as possible.

What is the guarantor responsible for?

While it is certainly a nice gesture to financially support a friend or family member if they’re having trouble obtaining a loan from a bank or otherwise, it is a massive responsibility that carries serious liability. By becoming a guarantor, you become liable to pay if the borrower or lessee defaults on its repayments. This means that the creditor may, once the borrower has defaulted, require the full repayment of all the money that still owed on the loan agreement. It is not uncommon for the creditor to take legal action and sue you directly as the guarantor (because you have the money). Once you are sued, you may have a claim against the borrower as a separate cause of action.

It’s not easy to imagine that a friend or family member would put you in such a difficult position where you end up paying for their debts, but the truth is it is difficult to know when such financial hardship will arise. Perhaps your friend/relative fell ill or lost their job, which might explain the unfortunate circumstances.

When deciding whether to become the guarantor, you must be completely prepared to meet the financial obligations of the debt you are guaranteeing. If you don’t understand something in the loan agreement, have a lawyer review it for you.

What are the guarantor’s obligations?

If the borrower is unable to meet the loan repayments and defaults, you will be required to pay the amount owed, which might encompass significant arrears of interest.

Can a guarantor avoid paying?

While there have been cases in the past which involved the guarantor showing to the Court that they did not fully understand what they were doing at the time they entered into the loan agreement as guarantor, guarantors will usually be made to pay on behalf of the debtor.

It is better to assume that any loan agreement, for which you guarantee the payment, will be enforceable in a Court, along with any security you have provided as the guarantor to the loan agreement.

Some creditors will require the guarantor to seek independent legal and financial advice. While this may appear selfless and highly considerate, it is actually just a way for creditors to greatly reduce the level of risk that a guarantor would be able to escape liability of the loan agreement. The guarantor may attempt to deny that they fully understood the legal significance of the agreement, or the legal and financial responsibility that becoming the guarantor inevitably involved. Needless to say, they’re usually made to pay.

The silver lining is that guarantors will usually have a counter claim against the borrower if, upon defaulting, they have been made to pay out the debt on the loan agreement


If you are in need of legal advice as a guarantor, looking to sue the party for which you became guarantor, or simply wish to have a set of eyes look over the terms and conditions of the loan or lease agreement, contact LegalVision on 1300 544 755 or fill in the form on this page.

We have a team of dedicated lawyers who have great depth of experience and knowledge in this area. We offer our clients fixed-fee quotes for any advice they seek.

Lachlan McKnight
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