Your rights as a guarantor for a loan and what happens if the borrower doesn’t pay.

Loan guarantor is responsible for the debt

Lenders may ask for a guarantor when the borrower doesn’t meet their lending criteria.

A guarantor is anyone who promises to be responsible for the debt of a borrower. They make the promise to the lender and if the borrower doesn’t pay what is owed, the guarantor may be called on to pay, or the lender may repossess any of the guarantor’s property listed as security for the debt.

So it is risky to agree to be a guarantor. You should always get independent legal advice before agreeing to be a guarantor.

For contracts of guarantee to be legally enforceable, they must be in writing and they must be signed. You must be given the same key information that is given to the debtor, as well as a copy of the contract of guarantee, before you agree to guarantee a credit contract. Any other changes or notices sent to the debtor should also be sent to you.

The law changed for credit contracts from 6 June 2015 and only apply to contracts entered into after that date.

Read the Commerce Commission’s fact sheet on how the changes to consumer law apply to contracts(external link) .

Know your rights

As a guarantor, you have specific rights to protect you under the Credit Contracts Consumer Finance Act (CCCFA). Responsible Lending Code. Lenders must:

  • make reasonable enquiries, before a guarantee is given, to be satisfied that a guarantor will be able to comply with the guarantee without suffering substantial hardship
  • assist guarantors to reach an informed decision about whether or not to give the guarantee
  • assist guarantors to be reasonably aware of the full implications of giving the guarantee.

The lender must also:

  • treat the guarantor reasonably and ethically before and during the period of the guarantee and if the credit contact is breached
  • make sure the guarantee is not oppressive or act in an oppressive way to get a guarantor to sign
  • comply with the Fair Trading Act and not mislead or deceive guarantors in any way
  • comply with the Consumer Guarantees Act so that their services meet all the guarantees.

If you were pressured into signing a guarantee by the lender or you were misled about what you were signing, you can apply to have the guarantee cancelled.

What the lender must tell you

The lender must give you, as the guarantor:

  • a copy of the key information provided to the borrower
  • a copy of the guarantee’s terms.

This information must be clear, concise and understandable for a reasonable person. It should not mislead or deceive a reasonable person.

Both documents must be given or sent to the guarantor before the guarantee is given.

If the guarantee also applies to later contracts made with the borrower, the lender must provide you with this information within 5 working days after the date of the new contracts.

If a lender and a borrower agree to change a consumer credit contract, the lender must disclose those changes to you within 5 working days if the change:

  • increases the borrower’s obligations or
  • reduces the borrower’s time to pay.

The same applies if the lender is able to make unilateral changes.

If a lender transfers a consumer credit contract to another lender, the previous lender must give you information about the new lender within 10 working days of that change including:

  • the date the consumer credit contract was or will be transferred to the new lender
  • the impact (if any) on the borrower.

See also:

If you have a problem, your options will depend on whether:

  • a term of the guarantee is too harsh, or the lender acted unfairly
  • you were given incomplete or inaccurate information before or during the guarantee.

Contact the lender

When either of these situations apply, contact the lender immediately to discuss changing or cancelling the guarantee.

Next steps

If you are unable to resolve your issue directly with the bank or service provider, contact the Financial Dispute Resolution Scheme that your lender belongs to. You can find the scheme details in the Financial Service Providers Register.

Financial Service Providers Register(external link) — New Zealand Companies Office

The Disputes Tribunal or District Court may be your next step.

Need more help?

Contact us for more guidance.

Common situation


Irene is pressured by the bank to sign a guarantee for her husband’s revolving credit loan. She does not get independent legal advice beforehand and thinks she is only liable for a small debt. Her husband goes on a spending spree and can’t make the interest payments or repay the debt. The bank tells her that she is liable for the whole debt. Irene is unhappy and gets advice. She finds out that the bank did not comply with the Lender Responsibility principles and so she can apply to the Disputes Tribunal to have the guarantee cancelled or not enforced.