WHAT YOU NEED TO KNOW ABOUT LOAN GUARANTEE.

A “Guarantor” is usually and commonly a friend, colleague or family member of a principal borrower, who has agreed to vouch for the principal borrower and accept liability on behalf of the borrower, in the unfortunate event of loan default.

Essentially, in the event of the borrower being unable to meet their obligations under the loan contract agreement, whether it is for overdue principal or interest, or both, the Guarantor is legally bound to accept the liabilities on behalf of the borrower.?

The Guarantor is expected to take responsibility for what he or she agreed to vouch for when signing the guarantee.

A joint and several guarantee means that ALL the guarantors are each liable IN EQUAL MEASURE for any outstanding defaulted loan. For example, if the defaulted loan balance is Ksh.. 100,000=, and there are 10 guarantors, then each guarantor is liable for Ksh. 10,000= per person. In case one or more of the guarantors have less than Ksh. 10,000= in their deposits, then this shortfall is divided equally among the rest, up until the full Ksh. 100,000= is paid up.

Unfortunately, one cannot withdraw as the guarantor of a loan at will, without following prescribed procedures for guarantor withdrawal. To withdraw as a guarantor, the guarantor should liaise with the principal borrower to find a suitable replacement guarantor with equal or higher deposits, to safeguard the interests of other co-guarantors.

Guarantorship is basically an affirmation by the guarantor that in case the borrower fails to pay, the guarantor will pay. The impact of standing guarantor for a loan is the same as taking a loan yourself.

Many guarantors don’t fully understand what their legal responsibilities are until they are required to step up and face the consequences of their duties.

Being a guarantor is a selfless good deed, and it enables the principal borrower to achieve certain financial goals, which without the guarantorship they would not have achieved. It is therefore important that the principal borrower fully understands that his/her guarantors are acting in good faith, and the same is expected of them in return.

?What then should prospective guarantors consider before appending their signatures to a loan?

• Emotional guilt tends to push us into a lot of situations that we don’t really want to be in. Yes, we love our friends and colleagues, and we want to do everything humanly possible to help them, but this is one of those situations where rationality is king.
• Finally as a guarantor, ensure that you accept guarantorship only after the application form has been properly and fully filled. DO NOT SIGN BLANK FORMS.
• In the event of defaulted loan, UN DT SACCO will have no option other than attaching the guarantors’ deposits for any balances not covered by the principal borrower’s deposits.

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