Jul 07, 2017

What is a Guarantor?

Taking up the responsibility of being someone’s guarantor is no joke. It is a very serious undertaking,  which means you are agreeing to guarantee a loan that a certain person or business is borrowing. You are also assuring the borrower that they will follow all the rules and conditions involved in the loan contract.  If a person does not abide by the loan, or fails to make payments, as a guarantor, you become the person responsible for the liability i.e. payment accountability of that contract.      

Things to Consider Before You Become a Guarantor

There are multiple things which you should keep in mind before you opt for this risky job. If you have been requested to be someone’s guarantor, you must be very sure what responsibilities you are signing up for. This is so because sometimes, you end up in serious financial trouble if you become a legal guarantor.

The first and the foremost thing to remember is; if the borrower gets behind on their payments, their lender will have the legal rights to come after you in pursuit of the money that is owed. This is done this way so that they don't have to chase the borrower.  

There is a serious consideration to keep in mind, if someone takes the role of a guarantor, and they get hit by a financial misfortune of having to pay money to the lender—their credit history, along with their credit score will be affected negatively. So, essentially, if you're being someone’s guarantor, you are even risking your own ability to maintain a good credit rating. You will also not be able to secure your own loans easily like you used to before. Even if you do, there will always be the disadvantage of securing loans with high interest rates because of the bruise in the credit history.

 Before you agree to be anyone’s guarantor,  ask yourself the following:

  • Why does the borrower need you to be their guarantor?
  • Do they already possess a bad credit history? If so, isn’t it obvious that they are more prone to be defaulting on this loan as well?
  • Is the borrower, , responsible enough to pay back a loan?
  • Is the loan wise enough for anyone to have voted in its favor?
  • Are you listing any asset as a social security? Can you risk it, in case the money isn’t paid back?
  • The most important one—are you literally willing to pay back the loan in addition to the existing interest rates and recovery costs?

Look at the above questions and analyze them with a clear head. If you are able to answer the last four questions positively, with a big ‘Yes!’, only then can you consider yourself safe and take on the duty of a guarantor.  

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