Extra steps to protect yourself
These can be done if you are already a guarantor, or before you sign up.
The person asking you to be a guarantor is likely to be a family member or friend. For example, parents might guarantee a mortgage for their adult child.
It's a good idea to get a written agreement with the person asking you to be a guarantor. This document could:
- require them to share information about their finances, eg bank balance, rent rise, job loss
- set out who is responsible if something changes, eg if they move overseas or can no longer afford repayments.
Think about alternatives to a credit contract so you don't have to be a guarantor. One option is to extend your mortgage — if this is a realistic option — and lend the money to your loved one. Get help to draw up a loan agreement setting out how they will pay you back.
To create an agreement, you can buy a template online. Make sure you both understand it and sign it. Citizens Advice Bureau suggests these template options:
Personal loan agreements(external link) — Legal Documents New Zealand
Loan agreements(external link) — Law Live
If things go wrong
If you are having problems, eg unfair terms or a pushy debt collector, follow these steps — you might not need to do all three:
- Contact the lender or debt collection agency: Talk to them as soon as possible. Many issues can be solved at this step.
- Contact the lender's dispute resolution scheme: If you and the lender can't agree, get independent help to solve the problem.
- Report the lender to the Commerce Commission: This government agency gathers information to take action against lenders who break the rules. It doesn't take on individual cases.
1. Contact the lender
If the lender has acted unfairly, you might be able to change or cancel your guarantee. Before you make contact, read our information on:
- your rights
- how to complain.
A free financial mentor can help you contact the lender, or talk to the lender for you. Start by contacting the free helpline MoneyTalks.
Contact information(external link) — MoneyTalks
How to complain
- Check your credit contract — this should list all fees, and explain when you might have to pay these costs.
- Gather proof, eg if fee amount is more than what's listed in your contract or on their website, differences between your lender's fees and most others.
- Think about what you will say, making notes with points you want to cover.
- Decide your ideal outcome, egreduce or cancel the fee.
During the conversation:
- Take notes — include dates and what was said. If you need to take your complaint to the dispute resolution scheme, this will be helpful proof.
- Stick to the facts — explain the problem and share any proof.
- Say what you want — explain your ideal outcome.
- Take time out — if it gets heated, or you want to think about their response, arrange a time to call or email back. Explain you need time to digest the conversation.
- Make it official — if you reach an agreement to reduce or waive (cancel) a fee, get it in writing. It's a good idea to get your contract updated.
Before you agree to be a guarantor, the lender must:
- help you understand what it means to be a guarantor
- check you can afford to take over the repayments without substantial hardship — explained in the Responsible Lending Code as able to make repayments and pay your other bills
- give you clear and understandable information about the credit contract, eg repayments, fees, repossession rules
- give you copies of important documents
- not force you — or let anyone else force you — to be a guarantor.
When you are a guarantor, the lender must:
- treat you fairly at all times, eg clear communication, reasonable fees
- update you if something changes, eg loan top-ups, repossession notices
- update you within strict timelines, eg within 5 working days if the borrower increases the loan amount.
For detail on timelines, see the Commerce Commission website:
Being a guarantor(external link) — Commerce Commission
Your rights are protected by these laws:
- Credit Contracts and Consumer Finance Act (CCCFA) — covers responsible lending requirements to treat borrowers fairly, share key information (also called disclosure), repossession rules, and more. The Responsible Lending Code is a guide for lenders on how to act in line with CCCFA.
- Fair Trading Act — lenders must not mislead or lie to you, including in adverts or in contract terms (rules of the document you signed).
- Consumer Guarantees Act — lenders must not provide sub-standard services.
Credit Contracts and Consumer Finance Act
The CCCFA changed in June 2015. If the contract you guaranteed started before then, different rules might apply. Ask a free financial mentor for help.
2. Contact lender's dispute resolution scheme
All banks, lenders and financial advisers must belong to a financial dispute resolution scheme. This independent body can:
- give you information about how lenders should act
- share tips on how to complain to your lender
- look into certain complaints when you and your lender cannot agree on a solution.
It's free for you talk to them and make a complaint. Or a free financial mentor can do this for you. Start by contacting the MoneyTalks helpline.
Free confidential advice(external link) — MoneyTalks
There are four financial dispute resolution schemes. To find out which your lender belongs to, you can either:
- Ask your lender.
- Phone any one of the four schemes to find out. For contact details, see:
Financial dispute resolution schemes
You can also check the lender's entry on the Financial Service Providers Register:
Search the register(external link) — Financial Service Providers Register
If the dispute scheme investigates your complaint, it might:
- Reduce how much you owe: Fees or default interest might be deducted, especially if the lender let these build up before taking action.
- Cancel your guarantee: You may be released from some or all of your responsibilities as guarantor.
Case study(external link) — Financial Services Complaints Ltd