What is suretyship, and how it can benefit you when you're in a tricky financial situation.
It may happen that your monthly income and total net asset value does not meet the financial institution’s requirements in order for that institution to provide you with the full amount of the loan that you have applied for. In such an instance, the bank may ask you to get someone to stand as a guarantor for your loan. This means that if you do not repay the debt, that the surety becomes personally liable to do so.
A limited suretyship means that the surety is responsible up to a certain rand value If you are the person signing surety for someone else, make sure that you read the agreement carefully and that you are prepared to pay the debt if this person does not.
A word of caution: Try to avoid signing surety for anyone including family, friends, business partners, and definitely not your boyfriend or girlfriend.
If you have signed surety for someone and their financial position changes for the better it is always advisable to ask the bank if they would consider cancelling the suretyship.
Tips, if you are looking at standing as guarantor for someone’s loan:
Make sure you understand the ramifications of standing surety for someone’s debt;
Make sure you know how much of the debt you will be asked to pay;
Limit your surety to ‘a particular debt’ and not to ‘the person’ as you may find yourself paying for that person's other debt taken out years later;
It is advisable to limit your suretyship to a specific amount.
Security is something of value to the creditor which can be converted to cash in order to recoup the debt. An example of this is when you cede an insurance policy, which has a surrender value (the cash value on it).
This article originally appeared in Property Power 11th Edition Magazine. To order your copy at the discounted price of R120 click here