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As the loan market continually evolves, many borrowers are opting for guarantors. However, taking up such a crucial responsibility and a great leap of faith. Remember, you are taking a financial commitment that will link your finances with someone else’s. If anything goes wrong, you will be left picking the pieces and the bill as well. That is why you should never jump into such an agreement blindly. Have in mind some few things that will help you make the right choice. If you’re looking to be a one’s guarantor, here are some of the things you should think about before making a final decision.
Ensure you find out the real motive behind their borrowing
You probably believe that it is not right to pry into other people’s personal business. However, in this case, how the person you want to vouch for will spend the money is your business, as you’d have to pay up if anything goes wrong. So ensure you know what the money they are borrowing will be used for. For instance, it should be used on ventures that will not be a liability in the long run. If you think the reasons are farfetched and it’s not a good idea or you’ve any suspicions concerning their affordability, then do not hesitate to say no!
Before you commit to be a guarantor, you need to dig deeper into the reasons as to why the borrower was rejected. Lending institutions have various reasons as to why they deny applications, and not all of them should worry you. For instance, your son who just finished college might not have a significant credit history to qualify for an affordable loan with cheaper rates. He will be forced to approach you due to your good credit record and the strong relationship you have to be his guarantor. In this case, you should be comfortable to vouch for him.
However, someone asking you to be their guarantor for the mere reason of a poor credit history should raise a red flag. In such an instance, ensure you ask the person to explain in detail why their credit history is poor. They should also have a plan on how they will improve their credit history. If their reasons are not satisfying and their plan is poor, gently decline to be their guarantor.
How secure are your finances?
Naturally, you would want to help someone who you are close to, particularly if they’re your family or close friend. However, willingness to help and the ability to help are two different things. Before you become their guarantor, you should assess your financial situation and whether it can really allow you take up someone else’s debt should anything go wrong. Remember, this is a crucial decision that could even ruin your relationship should the worst happen. They would be financially linked to you, and their decisions could have a serious impact on your financial security. Therefore, if you have worries over your stability, do not hesitate to give a sharp no! You do not want to bruise your credit records beyond repair.