What is the difference between a borrower, guarantor, reference and witness?

Before you sign any loan contract - whether it is for your own loan or for a friend’s loan - always read the contract very, very carefully and make sure you understand exactly what your role and obligations are. Here is a simple explanation of what some of the roles might be: 

Borrower: The person who is borrowing money from a bank, money lender or financial institution. Typically, the borrower signs a contract and agrees to certain repayment terms. This person might also be known as the ‘principal borrower’, meaning the person who has borrowed the ‘principal’ or main loan amount.

Guarantor: If you are a guarantor on someone else’s loan, you are promising to the lender that you will repay the borrower’s loan if the borrower does not repay. If you sign as a guarantor on a loan contract, that is legally binding. Only agree to be a guarantor if you can afford the risk. 

Reference: A reference is considered to be just an introduction to the borrower, like a character reference. Referees should not be subject to what is written in the legal agreement. There should not be any obligation to repay someone else’s loan just by being a referee. If you are a referee and have not signed as a guarantor, and if you are being contacted to repay someone else’s loan as though you were a guarantor, you can be very clear and say that you have no legal obligation to pay. 

Witness: Technically, a ‘witness’ is meant to provide confirmation that a contract or transaction has taken place; for a loan contract, a ‘witness’ should not be expected to pay the loan amount  if the borrower cannot repay the loan. However in Hong Kong, money lenders often illegally use the term ‘witness’ in Bahasa Indonesia to refer to either a ‘guarantor’ or ‘reference’. Be cautious of signing a loan that uses this term. Before signing, clarify exactly what the obligations are - specifically whether you will be accountable to pay the loan if the borrower cannot. Be cautious of agreeing to be a ‘witness’ on the phone. If you have not signed someone else’s loan as a guarantor, you are not legally obliged to repay it as a ‘reference’ or ‘witness’.