The participation of a guarantor is required for some loans because the lender faces an increased risk of loss if the loan goes into default.
For instance, individuals who are not citizens of Singapore and are looking for a car loan, young people who are looking for an education loan, and those who are looking for personal loans without collateral may all need a guarantor. Even licensed moneylenders may look for further reassurance in the form of a guarantor.
However, before agreeing to take on this responsibility, it is absolutely necessary for you to become familiar with the requirements that must be met in order to act as a loan guarantor in Singapore.
What Does It mean to be a Loan Guarantor?
A loan guarantor is a person who agrees to be responsible for the repayment of another person’s debt and assumes the responsibility of doing so in the event that the original borrower is unable to meet their financial commitments is known as a loan guarantor.
To put it another way, if the borrower is unable to make the required payments on the loan, then the remaining balance of the debt falls under the responsibility of both the borrower and the loan guarantor.
The requirements for a guarantor in a loan in Singapore
Certain eligibility requirements need to be fulfilled in order to be considered for the role of loan guarantor. In most cases, loan guarantors are expected to have the following characteristics:
- Citizens of Singapore or Permanent Residents
- Older than 21 years of age
- Not currently an active bankrupt who has not yet been discharged or a debtor who is going through the bankruptcy process
In addition, other restrictions, such as minimum monthly income requirements and previous credit history, may be imposed by some lenders. It is essential to have an in-depth conversation with the lender about these qualifying requirements in order to have a complete grasp of them.
The responsibilities and duties that come along with being a loan guarantor
Imagine that your younger brother is in need of education loan. Because he has not yet reached the age of 21, he needs a guarantor. You volunteer as a guarantor, at which point you co-sign the loan agreement. As long as your brother makes his student loan payments on time and in full every month, you won’t have to worry about any unfavorable outcomes. On the other hand, if he is unable to make payments, even in part, you will be expected to take on the responsibility of paying off the debt on his behalf.
Your responsibility as the loan guarantor will continue as long as the debt is not paid off in an appropriate manner, which might occur either when the loan is paid off in full or when it is discharged.
In addition to being responsible for the loan itself, the loan guarantor is also liable for any and all legal fees, charges, and interest that accrues for the full period that the loan is in default of repayment.
Legal responsibilities that come with guaranteeing a loan in Singapore
It is vital to keep in mind that taking on the job of a loan guarantor comes with a number of unique legal responsibilities, some of which are mentioned below for your reference:
- In the event that a principal debtor provision is present in the contract, you will be held liable for the debt as though you were the one who was borrowing the money. This indicates that your liability would continue unabated even in the event that the borrower successfully evades responsibilities.
- Payment on demand is a lending arrangement in which the lender retains the right to demand repayment from the borrower at any time without being required to provide evidence of having made previous efforts to collect the debt from the borrower.
- Even in the event that the lender restructures the terms of the loan, your obligations as a guarantee will remain unchanged.
- Your legal responsibilities include not only the outstanding debt of the borrower but also any future advances made to the borrower, as well as the lender’s charges and costs.
- You are not permitted to commence recovery procedures against the borrower until the lender has settled the borrower’s debt, as this is required by the subordination agreement. In addition, you are not permitted to demand security or assets from the borrower if doing so would violate the lender’s rights in any way.
- There is a possibility that you and the borrower will be required to participate in the process of debt recovery together.
- If you have any monies that are currently being held by the lender, they may be applied toward the amount of the loan that is still owing.
Before agreeing to act in the capacity of loan guarantor, it is essential to educate oneself thoroughly on the relevant legal responsibilities.
Read more on the responsibilities of being a guarantor in Singapore.
Considerations to Evaluate Before Agreeing to be a Loan Guarantor
Guarantees for loans should not be taken lightly. If the borrower defaults, serious consequences may result.
Before agreeing to act as a loan guarantor, there are a few things you need to keep in mind.
Are you in a position to make the loan repayments on behalf of the borrower?
In the event that the borrower fails to make their payments on the loan, the responsibility for the debt will fall on you. Are you willing and able to make the repayment of the loan on behalf of the borrower in the event that this occurs?
You should be aware that you will also be responsible for any costs and fees that may result from the default, such as accumulated interest and legal fees.
What is the likelihood that the borrower will pay back the loan?
If the borrower asks you to act as a loan guarantor, you need to carefully consider the borrower’s ability to repay the loan before agreeing to do so.
Don’t take their word for it without investigating further. Be on the lookout for potential red flags, such as an inability to pay bills on time or maintain a steady work, wasteful spending, a propensity to lie or violate commitments, and other behaviors that indicate a lack of trustworthiness.
Keep in mind that you are in no way required to act as a loan guarantor for anyone. You shouldn’t agree to guarantee the borrower’s loan if you have any doubts about whether or not the borrower will make the required repayments on time.
Do you have a complete understanding of your responsibilities?
Make sure that you read the terms and circumstances of the loan, your obligations as the guarantee, and the conditions under which your obligations will be called in, and that you have a complete understanding of all of these things.
Take your time and go over everything before making any decisions. If there is anything that you are unsure of, you should inquire about getting an explanation from the lender.
Have the lender provided you with a copy of the Note of Contract ?
The lender is obligated to give you an official copy of the Note of Contract, which should include all of the loan particulars such as the following:
- Amount of the loan
- The interest rate on the loan
- Term of the loan
- The most that can be charged
- Administrative cost
- Fee for being late
- Interest charges for overdue payments
You need to make sure that the copy of the loan contract that you have is safely stored away until the debt has been repaid in full and your responsibilities as a loan guarantor have been released.
If You are Requested to Be a Loan Guarantor, You Should Proceed with Extreme Caution.
A person can sign up to be a loan guarantor if they are an adult, a citizen or permanent resident of Singapore, have an excellent credit history, and hold all of these qualifications.
Being a loan guarantor, on the other hand, is not something that should be taken lightly because of the significant responsibilities and legal requirements that come along with such a role. Be sure to give any requests of this nature great and complete consideration.
Read also: 24 Hours Money Lender Singapore: What You Need to Know
