Personal Guarantee

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Definition of 'Personal Guarantee'

A personal guarantee is a legal document in which a person promises to pay back a debt if the borrower defaults. The guarantor is usually someone with a good credit history and sufficient assets to cover the debt.

Personal guarantees are often required by lenders when borrowers have poor credit or insufficient collateral. They can also be used to secure loans for businesses or other ventures that are considered to be high-risk.

When a lender accepts a personal guarantee, they are essentially transferring the risk of default from the borrower to the guarantor. This means that if the borrower fails to make payments, the lender can go after the guarantor for the full amount of the debt.

Personal guarantees can be a valuable tool for lenders, but they also come with some risks. For example, if the guarantor is unable to pay back the debt, they could lose their home or other assets. Additionally, personal guarantees can make it difficult for borrowers to get credit in the future.

Before signing a personal guarantee, it is important to understand the risks involved. You should also make sure that you are comfortable with the terms of the guarantee and that you have the financial means to repay the debt if necessary.

Here are some additional things to keep in mind about personal guarantees:

* They can be used for a variety of purposes, including loans, leases, and credit card agreements.
* The guarantor is typically responsible for the full amount of the debt, even if the borrower only owes a portion of it.
* Personal guarantees can last for a specified period of time or indefinitely.
* They can be revoked by the guarantor, but this may not always be possible.
* If the guarantor defaults on the guarantee, the lender can take legal action to collect the debt.

Personal guarantees are a complex financial product and should not be taken lightly. If you are considering signing a personal guarantee, be sure to speak to an experienced financial advisor first.

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