It could be a desperate friend in dire need for quick cash, or one who has not been able to maintain a good credit score for whatevrr reasons; and now you are asked to be a guarantor for their loans. Being a guarantee means taking the responsibility of someone’s loan repayment, and that brings forth some major risks . If you have been asked for being a guarantor, you need to see if you are prepared for being one or not. Below are some pointers that can aid your self assessment:
Your are the Prime Financial Risk Bearer
When you are co-signing a loan for any of your friends or acquaintances, you are basically signing up for a good amount of risk. In case the borrower fails to pay back the debt, it will be you doing the honours. This could be perhaps because the borrower is below the age limit of acquiring credit or has had some bad experience repaying the debt.
Your Credit History is at Stake
One thing which many people tend to ignore while they sign for a loan as a guarantor is that their liabilities aren’t only limited to the immediate financial ones. In case the debtor fails to pay off the amount of loan, the responsibility of doing so is in your shoulder. But it doesn’t stop here, because if you fail to do that too (because perhaps you haven’t planned for this contingency or have some immediate expenses and thus no money to pay off the debt) your credit score/history would be affected. Putting your credit history at risk is quite a huge undertaking, thus it is better to do your part of the research when being a guarantor or that if you are ready for it.
You are Aware of the Borrower
If you are stuck in the quest to be a guarantor, it is better to ask yourself if you know the borrower well. This is because you will be incurring huge financial responsibility on behalf of that individual. Also, your credibility as a borrower will be at risk for the same. Thus, it is better to go for signing for the loans of close family members or friends whom you know well as a guarantor, can guide in loan repayment process, and communicate on a regular basis about it. The more intimate the connection is, the easier it is to be a guarantor for someone.
You Have The Needed Documentations
Being a guarantor it is important to get a hold of all the necessary documents of the loan which include the amount, interest and the repayment schedule and time frame. Make sure you will be getting all of this without much hassle before you sign up to be a guarantor. Also, if you think you will be informed with any of the changes in credit or plans pertaining to it, then only go for it with full security of your own credit rapport and finances.
It is important to check with the essentials of being a guarantor before you take a decision as major as this one. You also need to be sure of exact liabilities you’ll be having and sign up only if you are comfortable, no matter what.