Co-borrowers and Guarantors
People often sign contracts to help family members or partners get credit without realising that this makes them responsible for paying the contract. Becoming a co-borrower or guarantor comes with responsibilities that may mean you end up having to personally repay the entire debt.
As a mutually responsible organisation, we would like to provide some important. Information below provides some important information about your rights and responsibilities as a co-borrower or guarantor. This does not form part of any of the Terms and Conditions of your loan or guarantee.
Becoming a Co-borrower
If you sign a loan Account in joint names with another person, it means you have become a co-borrower. Co-borrowers are both liable for the entire debt from the beginning. Before becoming a co-borrower you need to carefully consider if you are comfortable accepting this responsibility.
Australian Central will not accept you as a co-borrower if we are aware, or ought to be aware, that you will not receive a benefit from the loan.
Responsibility for repayments
Co-borrowers have what is known as 'joint and several liability' to repay the debt. This means that each borrower is responsible for the entire debt and for making the repayments.
As a co-borrower you have a responsibility to ensure repayments are made even if:
- you have an agreement with your co-borrower that they will repay all of the loan
- you no longer have the goods purchased with the funds from the loan
- your relationship with the co-borrower ends
Recovering the debt
If loan payments are not being made, Australian Central can pursue one, some (in the case of more than 2 borrowers) or all of the borrowers. Generally we will pursue whichever borrower we believe is most likely to make repayments. So for example if you are a co-borrower on a loan and the other borrower disappears, Australian Central does not have to locate that person we can choose just to pursue you and commence court action against you.
Becoming a Guarantor
A guarantee is a promise by you that the person who is getting credit under a credit contract (the “debtor”) will fulfill the terms and conditions. If that person does not do so, you promise to pay Australian Central all the money owing on the contract (and any reasonable enforcement expenses) as soon as the money is asked for, up to the limit, if any, stated in the guarantee. If you do not pay, then Australian Central can take enforcement action against you which may result in the forced sale of any property owned by you such as your house.
You should consider very carefully your decision to become a guarantor, Australian Central recommends that you seek independent legal and financial advice before entering into a guarantee.
Your responsibility as a guarantor
If the debtor defaults on the loan you have guaranteed you will be required to pay what the debtor owes Australian Central, subject to any limit provided in the guarantee, plus Australian Central’s reasonable expenses in making you honour your contract guarantee.
Mortgage Security
As part of the guarantee you may be required to provide security in the form of a mortgage. A mortgage means that you give Australian Central certain rights over property that you own.
If the debtor defaults on the loan and you are unable to pay any amounts owing in accordance with the guarantee, Australian Central may take court action to repossess the mortgaged property. You should understand that you might still owe money to Australian Central even after the mortgaged property is sold.
While your mortgaged property is applied to the guarantee you cannot sell the property or transfer ownership to any other person unless you have Australian Central’s or the court’s permission.
What happens if the debtor defaults?
In most cases if the debtor defaults on the loan both you and the debtor will be provided written notification providing at least 30 days from the date of the notice to do something about the matter. The notice will advise;
- why Australian Central wants to take action; and
- what can be done to stop it (if the default can be remedied); and
- that if the same sort of default is committed within 30 days of the date of the notice and is not remedied within that period, Australian Central can take action without further notice.
You should immediately discuss any warning notice with the debtor and consider getting independent legal advice and/or financial advice.
Need more information?
For information on Guarantees, please refer to "Things you should know about Guarantees". Note that this information is designed as a general guide only. Prior to making the decision to become a co-borrower or guarantor please contact Australian Central for further information or contact your legal or financial adviser for professional advice.
