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Signing as a Loan Guarantor? Here’s what you need to Know
If you’re responsible with your personal funds and you have a strong credit score, somebody may ask you to be a loan guarantor. Signing as a loan guarantor can support another person, such as a child, sibling or other relative, acquire a loan. As a loan guarantor, you consent to repay the borrower’s loan in the case of default. But before signing your name to loan documents, you should think about a few things.
Borrower’s Financial History
The fact that the borrower couldn’t get hold of a loan on his own should raise red flags. Have an open financial discussion with the borrower before engaging as a loan guarantor. Why does he need a loan guarantor? If possible, review the borrower’s credit report and assess his current debts. You’re financially responsible for the debt if the borrower stops paying. Assessing his debts provides suggestions as to whether a new loan will overextend him financially. If the borrower is reluctant to disclose this information to you, do not sign as a loan guarantor.
Early Release Policy
Talk with the lender before signing as a loan guarantor and ask about an early release policy. Some banks have this clause in loan a agreement, which releases a loan guarantor after a specific period has elapsed. For instance, if the borrower makes timely payments for 12 months, the bank may take out your name from the loan. This lowers your risk because your duty as a loan guarantor expires after one year.
Even if the borrower has honest intentions, unexpected situations can cause him to default on the loan. These consist of a job loss and illness. Before signing as a loan guarantor, talk to the lender about credit insurance. This is coverage that pays credit cards, auto loans, mortgages and other loans in the event of death, job loss or illness. If one of these circumstances occurs, the credit insurance kicks in and makes the payment for you.
Signing as a loan guarantor will have an influence on your credit report and score. While you’re not the primary borrower and may never make a loan payment, this account will show up on your credit report. This increases your debt-to-income ratio and may bring about problems when you’re ready to apply for your own loan. Debt-to-income ratio is your percentage of debt in relation to your income. Don’t quickly agree to be a loan guarantor. Consider your plans for the future. Would you like to buy a house or finance a car in the near future? Understand that signing as a loan guarantor can put your purchasing plans on hold — unless you have considerable income to support multiple loans in your name.
Applying for a guarantor loans fast payout, depending on the conditions, is usually very tedious. Loans are typically accepted after your credit file and capacity to service the loan are checked. In cases where a loan application cannot stand on its own merits, a credit provider will often suggest a guarantor is put forward to secure the loan. When this happens, it’s not uncommon for the guarantor to be a relative or a friend of the primary applicant. In these circumstances, it’s very important to think long and hard before you agree to act as a guarantor because acting as a guarantor comes with swag of responsibilities.
As a guarantor, if the loan comes into arrears you may be called upon to take over the payments. Clearly this condition is especially serious for the guarantor – especially if the guarantor is incompetent to afford the repayments. As earlier stated, the guarantor is usually a friend or a family member so when they are approached to act as a guarantor, it’s very tough to say no. The family member or friend naturally wants to be supportive and the loan applicant has every motive of paying the loan.
Despite the loan applicant’s best intentions though, circumstances and events change and there is no way anyone could give full assurance that they will be responsible to service the debt, no matter what. For example, changes in employment, relationship breakdowns, injury or accidents, health problems and any unexpected increase in costs will place stress on anyone trying to service debt. It’s important therefore to really take into consideration the effects of acting as a guarantor before you agree to do so. Saying no to becoming a guarantor is sometimes far easier said than done so if you are ever asked to act as a guarantor, it’s best to be straightforward and honest in the first instance.
What if I can’t keep up my repayments?
If you can’t keep up with your repayments you must contact your moneylender immediately and advise your struggling with the monthly installments some companies will adjust your monthly installments to reflect what you can afford to pay back on a monthly basis please note that this can also extend your term of the agreement and probably the amount of interest that you end up paying back. You’re never advised to just stop paying your agreement as this may result in interest being charged on the agreement and missed payments showing on your file this could make obtaining further down the line a lot more difficult.
What do i do next?
Next is the fun bit you need to click on the apply button and fill out our simple online form designed to make sure the whole application as smooth and pain free as possible. The whole application process from start to finished shouldnt take you longer that 3 minutes its as simple as you can get.
*Subject to lender approval and requirements.