Guarantor loans can be incredibly beneficial for many people, including those who want to buy a home without having to put down a deposit. Anyone who wants to get a loan but doesn’t have very good credit will find that having a guarantor can be of great help. A guarantor is essentially a person who agrees to take over loan payments in the event that the borrower is no longer able to do so. If someone has asked you to be a guarantor for them, there are a number of things that you will have to take into consideration before making a decision.
The Risks of becoming a Guarantor
There are some fairly significant risks associated with being a guarantor, and it’s important that you know what they are. First and foremost, you will need to understand that you’ll be completely responsible for paying off the rest of the loan if the borrower is no longer able to pay it off for whatever reason. No matter how much you may trust the borrower, there is always a chance that you will left with the responsibility of paying the loan in its entirety.
Take some time to ask yourself whether or not you are truly willing to accept this risk before making a final decision. Not everyone should take this risk, so it is definitely something that you will want to think about. If you know that you won’t be able to afford the loan if the borrower defaults on it, do not accept this responsibility.
You also risk losing significant assets/property if both the borrower and you are unable to pay back the loan. The lender has every right to seize your home, car or whatever property you have put down as collateral on behalf of the borrower. Ask yourself if you are really willing to risk your home or car if things don’t work out.
Knowing the Borrower
It is crucial that you know the person who is taking out the loan very well so as to minimize the amount of risk involved in becoming a guarantor. The better you know this person, the less of a risk you will ultimately be taking. Ask yourself if this person is truly responsible and reliable, because if not you probably shouldn’t make this kind of serious commitment. You will also need to be sure that the person won’t have any difficulty paying off the loan in full. By getting this information you will be able to make a smart final decision and put your mind at ease.
Know your responsibilities
The contract that you will be required to sign with the lender will outline the specific responsibilities that you will have as the guarantor. You will want to make a point of carefully reading through all of these details so that you will know exactly what your responsibilities are going to be. You definitely don’t want to enter into this sort of commitment without getting this information first.
It’s a big commitment
Keep in mind that acting as a guarantor is a huge commitment, and it’s not one that you should take lightly. Too many people rush into this sort of decision, and many of them end up regretting it. Since you could potentially lose your house, car or some other valuable property of yours, you will need to make a point of doing your research and thinking about this carefully. Themore time you take to do your homework, the better of a decision you will ultimately make.
There is no doubt that guarantor loans can be incredibly beneficial for the borrower, but the guarantor assumes a lot of risk with little to no reward. While you may want to do a favour for your friend or family member, it is important that you consider what you are getting yourself into before making a decision. Not everyone can become a guarantor, though if you are approved you will still need to think about whether or not it’s something you really want to do. The lender will take a close look at the person’s credit, income and current assets before deciding whether or not they can be a guarantor for the borrower.