Never become a loan guarantor
A guarantor on a loan is someone who agrees to be accountable (legally liable) for the repayment of the borrower’s debt in case the latter defaults on payments. Being a guarantor is not a mere formality to help a friend or relative obtain a loan. It is is a very serious undertaking. Guarantors are legally bound to make repayment if the borrower fails to settle the loan.
There are two strong reasons why you do not want to become a guarantor:
- Future loan prospects
Becoming a loan guarantor would significantly reduce your loan-taking capability. This is because the loan that you guaranteed is now your liability. The bank will therefore deduct that much amount from your loan eligibility.
- Loan default
The reasons for default could be beyond anybody’s control such as unforeseen financial hardships, unemployment, disability, death or it could simply be because the borrower refused to repay.
If this happens, the bank will go after you. Besides, they prefer to go after you all along. Do you know why? Because you are the one with the better credit standing (that’s why they allowed you to become the guarantor in the first place). They will have better chance of getting the money back, from you!
Bank can take over your personal assets such as bank accounts, cash as well as properties. They may file you for bankruptcy if they don’t get their money.
So the next time a someone asks you to become his/her guarantor, just say NO. You’ll be glad you did.