Being a guarantor for a friend's loan can be a risky decision, even if you
have a close relationship with the person. Here's what you need to know about
the responsibilities and potential consequences of being a guarantor,
|
| Loan guarantor responsibilities |
What does it mean to be a guarantor?
A
guarantor
is someone who agrees to be personally responsible for repaying a loan if
the primary borrower defaults on their payments. This means that if your
friend stops making payments on the loan, the lender will come after you for
the money.
What are the risks of being a guarantor?
The biggest risk of being a guarantor is that you could be on the hook for a
large amount of money if the primary borrower defaults. This could damage
your credit score, make it difficult to qualify for your own loans in the
future, and even lead to legal action if you are unable to repay the debt.
What are the benefits of being a guarantor?
The main benefit of being a guarantor is that you can help a friend or
family member get a loan that they would not otherwise qualify for. This can
be a valuable form of support, especially if your friend is using the
loan
to start a business or buy a home.
How can I protect myself if I am a guarantor?
Before you agree to be a guarantor, it is important to take steps to protect
yourself from financial liability. Here are a few things you can do:
Only agree to be a guarantor for a loan that you are comfortable with.This
means considering the amount of the loan, the interest rate, and the
borrower's creditworthiness.
Get everything in writing. Make sure you have a written agreement with the lender and the borrower that outlines your responsibilities as a guarantor.
Monitor the borrower's payments. Keep an eye on the borrower's credit report
and make sure they are making their payments on time.
Understand the terms of the loan. Make sure you understand all of the terms
of the loan, including the interest rate, repayment schedule, and default
provisions.
Should I be a guarantor for a friend's loan?
The
decision
of whether or not to be a guarantor is a personal one. There is no right or
wrong answer. However, it is important to weigh the risks and benefits
carefully before making a decision. If you are considering being a
guarantor, talk to a financial advisor to get more information and
advice.