As guarantor loans are gaining in popularity now that people have a grasp on how they actually work, you may have been asked to stand as a guarantor for the loan of a friend or family member. Being someone’s guarantor is a very kind thing to do, as not only are you allowing them to borrow at a lower rate than they may be offered elsewhere, but you’re also helping them to make positive changes to their credit history. This is because, as long as they make each and every payment in full and on time, their credit rating should improve, meaning that next time they may not need a guarantor to get a good deal on credit. However, being a guarantor is a big commitment, and one which requires a bit of thought before signing on the dotted line. Here are the questions you should ask yourself:
Do I trust the borrower?
Think about whether you really trust the person who is borrowing the money. Do they have a good track record of borrowing money, or have they been a bit reckless in the past? Have they ever fallen out with someone about money? Although they may have the best intentions, if you feel like this is a loan which is doomed to fail, then don’t stand as their guarantor.
Do I think they can afford the loan?
Look at the monthly repayment amount – do you think that they will be able to afford to pay this each and every month? The guarantor lender should do a full income and expenditure check with them to ensure that it’s affordable, but as someone who understands their lifestyle, do you really think that paying out this amount is do-able for them?
Could I pay if I had to?
As a guarantor, it would be your responsibility to pay the loan instalments if the borrower doesn’t. This is a scenario which you must consider before signing up, however unlikely it seems. As you will have signed a contract, you would be legally bound to make these payments, so if you’re unable to afford them then you must admit this, just in case.
What are the risks involved?
If the guarantor doesn’t make a payment, then the guarantor loan company should try to contact them in the first instance. If they cannot make contact or if they can’t come to an arrangement with the borrower to recover the missed payment, then they will ask you to step in. You should be notified before this happens so that you’ve had some warning that the payment has not been made. If you yourself fail to make the payments too, then court proceedings may be brought against you.
How do I really feel about standing as a guarantor?
Take some time away from the person asking you to help and really think about how you feel. If you have any concerns or questions about the lender, then try to contact them directly to get a feel for their customer service. Trust your gut instinct – if you are confident that the borrower can pay the loan back in full and on time, then go for it.
Do I trust the borrower?
Think about whether you really trust the person who is borrowing the money. Do they have a good track record of borrowing money, or have they been a bit reckless in the past? Have they ever fallen out with someone about money? Although they may have the best intentions, if you feel like this is a loan which is doomed to fail, then don’t stand as their guarantor.
Do I think they can afford the loan?
Look at the monthly repayment amount – do you think that they will be able to afford to pay this each and every month? The guarantor lender should do a full income and expenditure check with them to ensure that it’s affordable, but as someone who understands their lifestyle, do you really think that paying out this amount is do-able for them?
Could I pay if I had to?
As a guarantor, it would be your responsibility to pay the loan instalments if the borrower doesn’t. This is a scenario which you must consider before signing up, however unlikely it seems. As you will have signed a contract, you would be legally bound to make these payments, so if you’re unable to afford them then you must admit this, just in case.
What are the risks involved?
If the guarantor doesn’t make a payment, then the guarantor loan company should try to contact them in the first instance. If they cannot make contact or if they can’t come to an arrangement with the borrower to recover the missed payment, then they will ask you to step in. You should be notified before this happens so that you’ve had some warning that the payment has not been made. If you yourself fail to make the payments too, then court proceedings may be brought against you.
How do I really feel about standing as a guarantor?
Take some time away from the person asking you to help and really think about how you feel. If you have any concerns or questions about the lender, then try to contact them directly to get a feel for their customer service. Trust your gut instinct – if you are confident that the borrower can pay the loan back in full and on time, then go for it.