Personal Loans Smart Guide

3. Paying it off

What youll learn: dont lose the house by doing someone a favour.

In some cases usually when a borrower has no credit history to back up their assertion that they will repay a loan the lender will require a guarantor for the loan. A guarantor agrees to be responsible for the repayments should the borrower fail to meet their obligations.

A common example is parents being asked to go guarantor for an adult childs loan.

Guarantors should ensure their guarantee is limited to a set amount and a specific time period and they should always seek the help of a lawyer and financial adviser before proceeding. Guarantors with a close personal relationship with the borrower in particular should make sure they have objective, outside advice.

Think carefully before you agree to go guarantor. Ask yourself whether you really could meet those repayments. Its not unknown for someone to lose their home over a guarantee they never expected to have to meet.

Read more about:

Folks risk the house for kids' mortgages, Michelle Singer, May 8, 2005 - The Sun Herald Parents were once merely the guarantors for their children's property purchases. But now a parent's signature, using equity in their own properties as a substitute for a cash deposit, can be worth up to 20 per cent of the value of a child's property.

Tough love, Denise Cullen, June 1, 2005 - The Sydney Morning Herald Putting your home on the line to help your kids into the property market is risky, writes Denise Cullen.