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Points to consider when acting as Guarantor to a loan

When you sign a bank guarantee you should know what you are letting yourself into.

Here are some pointers to common clauses in bank guarantees:

  1. As a guarantor you will be a principal debtor. This means the bank can choose to claim payment from you, without first trying to get the money from the debtor. It is entirely up to the bank whether they ask you, or the debtor, or any other guarantor to pay the debt. You cannot require the bank to attempt to extract the money from the debtor or other guarantors first.
  2. Unless there is specific maximum amount to the guarantee, it covers all money owed by the debtor to the bank at any time. The guarantee is not limited to the initial loan.
  3. If the guarantee is unlimited it will cover every amount owed by the debtor to the bank without any maximum limit.
  4. The bank is entitled to deduct any debt owed by the debtor from any bank account that you have with the bank.
  5. You cannot withdraw from the guarantee unless you get the bank’s agreement.

Guarantees are easy to get into but can be very costly to get out of. For this reason banks and lawyers are usually very careful to explain all details of a guarantee before you sign.

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