Loan advice

If you guarantee a family member's or someone else's loan, or offer your own property as security, the lender will usually require you to get advice from an independent solicitor, who then signs a Certificate of Independent Legal Advice. A guarantee can make you liable for another person's debt and can put your own home at risk, so you should understand the extent of your liability, any limit and how you can get out before you sign. We explain these documents to guarantors in Mandarin, Cantonese or English, and review private loan agreements.

Key points

• The National Credit Code generally applies to credit for personal, domestic or household purposes, and to credit to buy, renovate or improve residential investment property.
• A guarantee covered by the Code must be in writing and signed by the guarantor, and the guarantor can withdraw by written notice before credit is provided.
• Under the Banking Code of Practice, subscribing banks generally will not accept a guarantee until the third day after giving the guarantor the required information, unless an exception applies, such as the guarantor having received independent legal advice.
• Under that Code, a guarantee can be limited to a specific amount or the value of a specified property, and the guarantor can write to the bank to limit their liability.
• Business loans and some private loans may fall outside these consumer credit protections.

What is a certificate of independent legal advice, and why do lenders ask for it?

A certificate of independent legal advice is signed by a solicitor to confirm that, without the borrower present, they explained to the guarantor or mortgagor the nature and legal effect of the loan, guarantee and mortgage documents and the liability involved, and that the guarantor appeared to understand and sign freely. 'Independent' means the solicitor acts for you alone, not for the borrower or the lender.

If a guarantor later shows that they did not understand the documents, were under undue pressure, or that the lender did not take reasonable steps, a court may in some circumstances refuse to enforce the guarantee. That is why banks, non-bank lenders and private lenders commonly make a solicitor's certificate a condition before settlement.

Key risks to understand before you sign a guarantee

• Paying someone else's debt: if the borrower defaults, you may have to repay the debt and, depending on the terms, interest, default fees and enforcement costs.
• Risk to your property: if your property is mortgaged as security, the lender may be able to sell it after a default.
• All monies clauses: these can extend the guarantee to the borrower's other present and future debts.
• Relationship changes do not end the guarantee: a child's separation or a falling-out between business partners does not usually end it automatically.
• Your own borrowing: a guarantee may affect your ability to borrow or refinance later.

Parents guaranteeing a child's home loan: what to ask

A common 'family guarantee' involves parents offering part of the equity in their own home as extra security for a child's home loan. For example, a child buys a first apartment in Melbourne and the parents give a limited guarantee secured over their mortgage-free home. Before signing, parents should ask:

• Is there a dollar limit, and does it include interest and costs?
• When can the guarantee be released, for example once the loan falls below a certain level?
• If the child falls behind, must the lender pursue the child before the parents?
• Will the parents' consent be needed if the child later refinances or borrows more?

The legal framework: consumer credit law and the Banking Code

Where a loan is regulated by the National Consumer Credit Protection Act 2009 and its Schedule, the National Credit Code, there are statutory requirements for guarantees. These include that the guarantee be in writing and signed by the guarantor, that the guarantor receive the proposed credit contract and an information statement before signing, and that the guarantor can withdraw in writing before credit is provided. In some cases a guarantor can also withdraw if the credit contract is materially different from the one proposed.

Banks that subscribe to the Banking Code of Practice have extra commitments, such as giving individual guarantors information about the loan and generally waiting until the third day before accepting a signed guarantee. Business loans, company borrowings and private loans may not be covered by these consumer protections, so guarantors should have them reviewed before signing.

Guarantors who do not read English: what is different?

Most certificate forms require the solicitor to confirm that the guarantor understood the documents. If the guarantor has limited English, the advice must be given in a language they understand, and some lenders require a qualified interpreter or a statement in the certificate of the language used. Our lawyers can explain the documents directly in Mandarin or Cantonese, but whether that is accepted in place of an interpreter depends on the lender, and we check this before the meeting.

The solicitor must also verify the guarantor's identity and check, privately, whether the guarantor is under pressure from the borrower. If the solicitor considers that the guarantor does not understand or is not acting freely, they can decline to sign. The certificate only confirms that you received advice. It does not mean the guarantee is in your interest, and the decision to sign is yours.

Private lending and loan agreement review

Loans between family, friends or private lenders often lack proper documents, which makes recovery difficult if things go wrong. We can draft or review loan agreements, deeds of guarantee and security documents, setting out interest, repayment schedules, events of default, early repayment, and registration of a mortgage at the land titles office or a security interest on the Personal Property Securities Register (PPSR).

• For lenders: making sure the money is recoverable and the security and guarantee are enforceable;
• For borrowers: checking interest, default interest and fees, and understanding the consequences of default;
• For cross-border loans: considering how funds are transferred, where the borrower's assets are, and whether enforcement overseas would be practical.

Frequently asked questions

How long does a solicitor's certificate of independent legal advice take?

Usually one meeting, depending on the number and complexity of the documents. Sending us the lender's full document pack and certificate form in advance saves time.

Can the borrower's lawyer give the guarantor independent legal advice?

Generally no. Independent advice means the solicitor acts only for the guarantor, and most lenders will not accept a guarantor's certificate signed by the borrower's or the lender's lawyer.

I have signed a guarantee. Can I withdraw?

It depends. For loans regulated by the National Credit Code, a guarantor can generally withdraw in writing before credit is provided, with limited options after that. For business loans it depends on the contract, so get advice early.

How much could parents be liable for when guaranteeing a child's home loan?

It depends on the terms. A limited guarantee caps liability at an amount or a property's value, while an unlimited one may cover the whole debt and costs. Confirm the limit and release conditions before signing.

I live overseas. Can independent legal advice be done by video?

Some lenders accept video meetings, while others require an in-person meeting or a particular identity check. We confirm the lender's requirements first and arrange the meeting accordingly.

If you have been asked to guarantee a loan or provide security, or need a private loan agreement reviewed, call 03 9602 3988 to book a meeting at our Melbourne CBD office at Level 2, 262 Queen Street, or by video, in Mandarin, Cantonese or English. Property and commercial matters are handled by Tan Chua.

This article is general information only and is not legal advice.

Reviewed by Tan Chua, Lawyer, Chua Tan Associates | Last updated: October 2026