Have you been asked to help a friend or family member by being a guarantor on a loan? Whether it’s a small consumer loan or a large mortgage loan, agreeing to be a guarantor can be a big commitment. Here are some things you should consider before agreeing to sign your name on a guarantor loan.
What Should You Require of the Borrower?
Generally, any time a borrower needs a guarantor it’s because the borrower has poor credit due to not paying debts on time or lack of a credit history. Therefore, one of the first things you should is ask why he or she needs a guarantor. Secondly, you should ask for proof that he or she is financially able to make the loan payments throughout the life of the loan. Proof can be in the form of income statements and a list of all debts the borrower currently has.
What Should You Ask the Borrower to Agree To?
As a guarantor, you are as much responsible for paying the loan as the initial borrower. The loan will show up on both the borrower and the guarantor’s credit report. Therefore, if the borrower is late on any payments, it will negatively affect the guarantor as well. One of the most important things you should ask if for the borrower to inform you if the payment cannot be made. That way you can make it and prevent your credit score from being harmed.
How Do You Guarantee the Borrower Will Repay the Loan?
There really is not a 100% fool-proof way of guaranteeing the borrower is going to pay the loan. Sometimes having the borrower sign a legal agreement gives the guarantor a sense of security. You may also insist that the borrower put your name on the deed of any property purchased with the loan. This gives you rights to the property if the borrower defaults on payments. Often a borrower will be more likely to payments if he or she knows the property could be lost.
What Financial State Should You Be in Before Agreeing to Be a Guarantor?
From the time you sign as a guarantor, you should go into it with the mindset that you will be paying off the loan. Therefore, you should be in a financial situation that will allow you to easily pay the loan without it affecting your ability to meet other obligations.