Security for the loan

Sometimes lenders will ask you to provide security before they approve the loan. It's a safety net for the lender in case the borrower cannot or does not repay the debt.

Mortgaged property

If some type of property is offered as security such as a car or a house then a mortgage is taken over it. The lender will register their interest in the property. For example, a mortgage on a car will be registered with the Register of Encumbered Vehicles (REVS). Property that is mortgaged stays with the borrower but they do not have a clear title over it and cannot sell it without the lender's consent.

A guarantor

Another type of security is a guarantee. This is when a person, the guarantor, agrees to pay back the debt if the borrower can't or won't. Before you sign as a guarantor you must be given a copy of the credit contract and a document that explains your rights and obligations.

The best advice is to obtain independent legal advice before you agree to be guarantor; many lenders have this as a requirement, before you sign.

When a borrower falls behind with their repayments the lender should send a written notice (a default notice) to both the borrower and the guarantor. If the borrower does nothing about the default notice then the lender can take legal action against them to have the debt repaid. Sometimes the borrower cannot repay the debt. When this happens the lender can take legal action against the guarantor and they will have to repay the borrower's debt.

It is then left for the guarantor to try to recover their money back from the borrower.

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