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Alona Mercado     Guarantors: to be or not to be?

Over the past few months, I have received a number of inquiries regarding the legal responsibilities concerning guarantors. What exactly is a guarantor? What does it mean if you guarantee a car loan or a mortgage? What are your legal responsibilities as a guarantor?

Simply put, a guarantor is an individual who legally bind himself or herself to the performance of your contract in the event of a default. For example, if you act as a guarantor for your sister on her car loan and she isn’t able to pay for the monthly payments, you are legally responsible for making the payments for her. Why? By signing the contract you are guaranteeing its performance. Hence, you will bear the financial and legal responsibility for the debt.

I have heard many stories about friends or relatives agreeing to act as either a co-signer or a guarantor for a loan, a mortgage or a credit card. For the most part, the transactions are problem free. However, there are always those few instances where everything goes wrong, which makes you regret your decision.

When you agree to take on the legal and financial responsibilities of a guarantor, you should ask yourself a few questions before making a decision.

  • First, how well do you know the person who you are legally agreeing to guarantee?
  • Second, do you think the person will be able to make all the payments on time?
  • Third, if the person fails to make a payment, will you be able to handle the extra financial burden?
  • Finally, if you do make the payments, do you believe that the person will pay you back?

Your answers should be a good indicator of whether or not you should agree to be the guarantor.

In many cases, the guarantor has agreed only because the applicant is their relative or a good friend. They may have agreed out of a sense of family responsibility or utang na loob or because they believe it’s nakakahiya to say no. However, these feelings of obligation must be weighed against your ability to shoulder the legal and financial responsibility of being a guarantor. You must remember that your failure to make the payments will affect your credit rating.

The decision to be or not to be a guarantor should not be made solely on your relationship with the applicant. Neither should it be made quickly nor without knowing the full facts surrounding the actual terms of the loan, mortgage or credit card you are agreeing to guarantee. Regardless if it’s your ninang, brother, best friend or kumare, you need to protect yourself legally. Ask to see a copy of all the legal documents so that you can review it fully before you agree to be the guarantor or before you sign anything.

It is always advisable to seek the advice of a lawyer prior to signing such documents so that you can be certain of your rights and responsibilities as a guarantor. In fact, many financial institutions are now requiring that guarantors seek independent legal advice prior to signing any documents. This is being done because the financial institutions want to protect themselves from guarantors coming back in the future and saying that they didn’t know what they were signing. If the financial institutions are taking steps to protect themselves, shouldn’t you also do the same?

It is an admirable trait to want to help your family and friends but your desire to help should not come at your own expense. In the end, it’s obviously a very personal decision that needs to be made. But, if you agree to be a guarantor, remember this, in the event of a default, do you have the money to meet your legal responsibilities? That is the real question because if you don’t, then you will be the one in trouble.

The content of this article is not intended as legal advice and is for information purposes only. Should you require legal advice on a specific issue relating to the contents of this article, please seek the services of a legal professional.

Alona C. Mercado is a lawyer practising in Winnipeg with the law firm of MONK GOODWIN LLP. She was called to the Manitoba Bar in 1999 and the Ontario Bar in 2003. Her preferred areas of practice include wills and estates, committees, real estate, and immigration law. Alona can be reached at (204) 956-1060 ext. 233 or

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