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Understanding the roles and responsibilities of a guarantor


A guaranteed loan is a loan that a third party guarantees or assumes the debt obligation for, in the event that the borrower defaults. The third party is a guarantor often making reference to either a legal person or an individual who promises to pay a borrower’s debt in the event that the borrower defaults on their loan obligation.

Guarantors can either be limited or unlimited, with respect to different levels of financial involvement.

A limited guarantor may be asked to guarantee a loan only up to a certain time, after which the borrower alone assumes responsibility for the remaining payments and alone suffers the consequences of defaulting.

Unlimited guarantors on the other hand, are liable for the entire amount of the loan throughout the entire duration of the loan agreement.

In rare instances, individuals (borrowers) act as their own guarantors, by pledging their own assets against the loan. In Kenya, it is to be noted that the term “guarantor” is often interchanged with the term “surety.”

A guarantee is a significant element when an agreement is made between two parties to advance a loan facility and thus the inclusion of a guarantor is necessary. For instance, when the lender has less confidence in the borrower due to a low credit score, the presence of a guarantee can attract the lender. A guarantor thus needs strong credit, a good income, and adequate assets to guarantee loan repayment.

Some of the mandates of a guarantor include:

  • A guarantor guarantees to pay a borrower’s debt in the event that the borrower defaults on a loan obligation.

In a guarantor loan agreement, the Guarantor will pay to the Lender, upon demand, all money and discharge all obligations and liabilities, whether actual or contingent, owing or incurred to the Lender by the Principal Debtor.

  • The guarantor guarantees a loan by pledging their assets as collateral.
  • If the borrower defaults on their loan, then the guarantor is liable for the outstanding obligation, which they must meet, otherwise, legal action may be brought against them.

The Rights of the Guarantor

Unlike a co-signer who co-owns the asset purchased via the loan facility advanced to the borrower by the lender, a guarantor has no claim to the asset purchased by the borrower.

It is thus crucial to be aware of the few rights available to you as a guarantor if the borrower defaults and the lender pursues you to repay the outstanding debt. These include:

  • Reimbursement: if a guarantor paid any part of the borrower’s debt, the guarantor can pursue the borrower to recover the money paid or any out-of-pocket expense incurred in paying the debt. Specifications on this may vary from contract to contract.
  • The right to subrogation: if the guarantor pays back the lender/ financial institution in full, the guarantor is released of liability to them and consequently becomes the lender. As a result, the guarantor then has all the same rights as the bank did to collect the debt from the borrower.

In the event that the borrower has a claim against a third party that has caused the default, the guarantor has the right to invoke the doctrine of subrogation (“step into the shoes of the borrower”) in order to recover damages.

  • Collection from other guarantors: had there been multiple guarantors on the guarantor loan agreement and a guarantor paid more than his/her share of the debt or even satisfied the debt in full, he/she can pursue the other guarantors for their aggregate portions.

How can we assist you?

At Netsheria International, we have an experienced team of lawyers who can offer you legal assistance in your Guarantor Loan Agreements. Please contact us for our services at info@netsheria.com or visit our website at https://netsheria.com/ for more information on our services.


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