Being a guarantor for others |
Stewart and Stephanie had been going out together for a while and decided to pool their money to buy a car. They decided to buy a $5300 car from a used car dealership.
Together they saved $1500, and decided to get a loan from a finance company for the balance. The salesperson said that repayments would be $27 a week for three years. They agreed to put the loan in Stewart´s name.
After Stewart and Stephanie signed the documents, the salesperson started questioning their ability to repay the loan and started confusing them with talk about ´guarantors´ and ´security´.
The salesperson asked if either of them had a parent who could go guarantor for them. Both Stewart and Stephanie´s parents lived interstate and weren´t able to sign guarantor agreements at the dealership.
The salesperson told them to find a suitable guarantor for the loan and return the next day to finalise the paperwork. The salesperson also kept their deposit.
Stewart and Stephanie returned the next day with Stewart´s uncle, Bob. Together, they completed the paperwork. Bob thought by signing all the papers he was making it easy for the pair to buy a car. He was completely unaware of his financial responsibility as guarantor.
Three weeks later, the couple had an argument and Stephanie went to live with her parents.
As a first year apprentice, Stewart could not afford the loan on his own. However, he was responsible for the loan because his name was on all the documents. When he realised the situation he was in, he went to live with his parents and didn´t make another payment.
When the repayments stopped, the finance company started to look closely at the finance agreement. They contacted Bob and told him that he owed the balance of Stewart´s loan, plus other costs, which amounted to $4300 in total.
What could Bob have done to prevent this situation?
Going guarantor on a loan is a very serious responsibility. Bob signed a contract agreeing to cover Stewart´s payments and responsibilities if Stewart couldn´t.
Bob should have checked the contract carefully before he signed it. If Bob suspected that Stewart couldn´t afford the loan, he should not have signed the contract. He could have tried to convince his nephew to wait until he could afford the car.
Bob was forced to make the payments to the finance company. He later got most of the money back from Stewart and his parents, but couldn´t take a planned holiday because he was $4300 out of pocket for several months.
Read more about being a guarantor.
Last reviewed 30/11/2011 |
 |
