Reasons for removing a guarantor
A guarantor plays a crucial role in helping a borrower access credit, particularly in SACCOs and other community-based lending institutions. By guaranteeing a loan, the guarantor agrees to step in and repay the debt if the borrower defaults. However, there are situations where it becomes necessary or desirable to remove a guarantor from the loan agreement. This article explores the common reasons for removing a guarantor and the context under which such a change may be requested. Below are reasons for removing a guarantor.
Change in Relationship Between Borrower and Guarantor
One of the most common reasons for removing a guarantor is a breakdown in the personal or professional relationship between the borrower and the guarantor. Trust is central to any financial agreement involving guarantees. If the relationship sours due to personal disagreements, misunderstandings, or other disputes, either party may no longer feel comfortable maintaining the arrangement. In such cases, the borrower may seek a replacement to preserve peace or avoid future complications.
Guarantor Facing Financial Strain
A guarantor may request to be removed if their financial situation changes. For instance, if the guarantor loses their job, takes on other financial obligations, or is facing their own loan repayments, they may find it risky to continue guaranteeing someone else’s loan. SACCOs also limit the number of guarantees a member can provide based on their savings and shares. If a guarantor is overstretched, the institution may require their removal or replacement to reduce exposure to risk.
Borrower Has Improved Financial Standing
In some cases, the borrower may initiate the removal of a guarantor after demonstrating a stable repayment record or increased ability to repay the loan independently. This might be due to a promotion, new income streams, or better savings. Removing the guarantor in such a scenario can ease the burden on the guarantor and give the borrower full control of their financial commitments. Some borrowers also wish to remove guarantors who helped them during financial hardship but are no longer necessary.
Guarantor Wishes to Guarantee Another Loan
A guarantor can only commit their shares or savings to guarantee a limited number of loans, depending on the institution’s policies. If a guarantor wishes to support another borrower, perhaps a family member or a close associate, they may ask to be removed from an earlier loan agreement to free up their capacity. This scenario is common in SACCOs, where the value of shares is critical to determining guarantee ability.
Change in SACCO or Institutional Policy
Sometimes, institutions update their loan guarantee policies, introducing stricter eligibility requirements. If a guarantor no longer meets these new conditions—for example, due to retirement, inactivity, or changes in membership status—they may be removed from the agreement. In such cases, the borrower must find a new guarantor or meet new collateral requirements to maintain the loan.
To Avoid Conflicts or Legal Liability
Guarantors may also seek removal to avoid potential legal liability. If a borrower begins to default or shows signs of financial distress, a cautious guarantor might opt to withdraw before the situation worsens. This is especially true if the guarantor is uncomfortable taking on the risk or feels inadequately informed about the borrower’s repayment behavior.
Author: Andrew Walyaula
Andrew Walyaula is a seasoned multimedia journalist. waliaulaandrew0@gmail.com
