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Loan Personal Guarantee Form | Co-Sign a Loan

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The loan personal guarantee is a document that allows an individual, known as the “guarantor”, to be responsible for loaned money if it is not paid back by the borrower. In addition, the guarantor also gives the lender an added security blanket that often times will allow the borrower access to better financing options, such as the interest rate, due to the added layer of protection.

Release of Personal Guarantee – Use at the satisfaction of the loan or if the Guarantor is to be taken off the note for any other reason.

The Three Parties: Lender, Debtor, and Guarantor

A typical loan involves a contract between just lender and borrower. But what if the borrower has an inadequate or compromised credit history, low earnings, or other liabilities? While this would-be borrower might still secure financing at high rates and unfavorable terms, looping in a guarantor can dramatically improve the borrower’s prospects. The guarantor plays a similar role to a cosigner – putting their own resources on the line to support the borrower’s application. In turn, this can mean a higher chance of approval, lower interest rates, and more favorable overall borrowing terms.

The tradeoff is in risk for the guarantor. Since a personal loan is usually not backed with collateral, the lender’s next recourse following default is to go after the guarantor. There’s usually nothing to buffer the guarantor, who may swiftly find him or herself in a financial pickle.

What Needs to be Included in a Personal Loan Guarantee?

The crux of this document is a commitment on the part of the guarantor to promptly take over repayment if the debtor falls through. In general, the guarantor is subject to the same terms as the original borrower. This might even mean a punitive situation if the debtor defaults – requiring the guarantor to immediately repay the full remaining balance. Since the guarantor remains as financial backup through the term of the loan, the personal guarantee usually forbids the guarantor from transferring assets or otherwise significantly altering personal financial circumstances without the approval of the lender.

The contract should detail the total loan balance and the state in which it was granted. Lending standards vary by state, so specifying a loan’s place of origination clarifies its legal context and the specific provisions that might bear on the lending contract. Like any legal agreement, a personal loan guarantee should clearly name the parties and their addresses, and be dated, signed, and notarized. Copies of the personal loan guarantee should be distributed to at least the lender and guarantor.

Should the debtor fail in repayment and the debtor find him or herself on the hook, the guarantor does not usually have a legal remedy to seek restitution from the primary borrower. While the personal loan guarantee is a formal contract between lender and guarantor, the relationship between debtor and guarantor usually rests on just good faith. So guarantors should take care to vet their debtors and ensure that expectations are clearly communicated before any guarantee is signed.

(Video) What is a Loan Personal Guarantee Form?