How guarantor exposure is computed
When the primary borrower defaults, the lender typically repossesses the asset, sells it, and applies the sale proceeds against the outstanding loan balance. If the sale falls short of what is owed, that shortfall (plus recovery and legal costs) is passed to the guarantor. The math the calculator uses:
M = P * r * (1+r)^n / ((1+r)^n - 1) outstanding_d = M * (1 - (1+r)^-(n-d)) / r shortfall = outstanding_d - resale + repossession_costs worst_case = shortfall + legal_costs (optional) where P = loan principal (after any deposit) r = monthly rate (reducing balance) n = original term in months d = expected default month resale = expected sale value of the asset at month d repossession_costs = recovery + storage (Watu default KES 15,000) legal_costs = illustrative pursuit costs if the lender sues
Why resale is often lower than you think
Bodas depreciate hard, especially after collision or heavy commercial use. Rough rule from the Phase 0 boda methodology: expect 40 to 60% of cash price at month 12 in reasonable condition. A damaged bike sells for less. A repossessed asset that sits in a lender's yard for weeks before auction also sells for less. The bigger the gap between "book value in your head" and "actual auction realisation", the bigger your shortfall as guarantor.
What Kenyan law says about guarantors
Under standard Kenyan contract law, a signed guarantee is enforceable. Watu Credit's summarised customer terms explicitly reserve the right to pursue a guarantor for any shortfall after asset sale. This is legal, and it is what happens in practice. See guaranteeing a boda loan, your rights for what you can (and cannot) do to limit your exposure before you sign.
Legal-costs figure: what "illustrative" means
The legal-costs input is a rough estimate for a claim under the Small Claims Court threshold, currently KES 1,000,000 per the Small Claims Court Act 2016 (as amended). Under that threshold, filing fees, process-server costs, and minimal advocate fees are typically in the tens of thousands. High Court claims are much more expensive. Actual costs depend on how the lender chooses to pursue you and whether you engage counsel yourself.