Suretyship – what you need to know before signing

Written by Your Future Now

At some point most of us have come across the term ‘surety’ but often enough we do not fully understand the concept and how to prepare one’s self for such a commitment. What does it mean to sign surety?

The concept of signing surety can basically be defined as a person that acknowledges and commits to being primarily liable for the conduct, obligation, or performance of another.  The person signing surety pays the debt of a borrower-in-default.  In most cases, this person automatically acquires an assignment of a creditor’s (such as a bank, company, firm or financial institution) legal right to recover the amount paid from the borrower.

Having to sign surety has become quite common in today’s times and this has left thousands of hard-working individuals giving up their rights to their savings or investments in order to secure a loan for themselves or somebody else. It is a request put forth by most financial institutions or lenders to mitigate the risk they are exposed to and to also lower their cost of lending.

Your personal wealth maybe your biggest asset but it can also mean it could be your downfall as many eager borrowers will ask you to sign surety for them. You should not be doing this out of an emotional obligation. The consequences of this can be extremely detrimental, not only to your finances but also to your personal relationships.

The most important aspect when signing surety, as with any document, is to read the so-called fine print. It is pivotal to understand each aspect of the contract and to be fully aware of the risks involved, the exact amount you are liable for and the term of the loan. Do not assume that you may only be liable for the capital amount of the loan as the amount in question frequently includes interest and other charges.

Reviewing all the necessary documents can be a daunting task but it will prove to be worthwhile as you will become alert to all the clauses that will come into effect if in default. It is important to be cautious when signing unlimited surety. Countless amounts of individuals assume that the surety will lapse after the original loan has been paid. This is not the case as unlimited surety is not limited to that particular debt and if not cancelled, we may still be liable for the debt incurred by the borrower for years to come.

You need to ensure all your financial documentation is organised, filed and stored safely and this will help you to create your very own personal financial review file. This will play an important role if you may decide to sign surety again as you can then revert back to your financial files and assess your situation. As far as possible, you should try to negotiate the terms of the contract before signing it. In many instances, financial institutions may be willing to assist you, as this will increase the chances of them getting their loan paid back. Bad things happen to good people each and every day and to have ultimate peace of mind, one should look into taking out insurance cover for the amount you are liable for.

You need to be brutally honest with yourself and examine your personal financial situation to ensure that you can actually afford any repayments or instalments due. By doing this you can assess your position without jeopardising your financial health and your future.

Ultimately, if you are unsure or are hesitate in signing surety then you should take a step back and ask yourself a simple question, ‘Do I really know what I am committing myself too?’

Article Categories:
Credit and Debt

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