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Should I go Guarantor on a Loan?

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You know someone who wants to take out a loan but they have no credit history or no security for the loan. All you need to do is sign a paper to say you’ll guarantee it and they get their money. It seems so easy and harmless. But is it a wise thing to do?

Guaranteeing a person’s loan is called “going guarantor” for that loan. People often agree to going guarantor on a loan without giving a great deal of thought to the possible ramifications of that agreement.

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 To guarantee a loan is making a promise to be responsible for that loan if the person who borrowed the money can’t make or doesn’t make the repayments. In short, you become responsible for loan – it is now yours. That means you must repay it along with all fees and interest charges. Logo Green X-small.jpg
Going guarantor for another person is so easy and it is difficult to refuse, especially if it is a family member. However, serious thought should be given before any commitment is made. People have fallen into financial trouble because of loan guarantees that have not worked out.

Before becoming guarantor for any loan or debt belonging to another person you need to consider:
♦ What is the loan for?
♦ What is the maximum you might have to pay if the loan becomes your responsibility? Remember to add in interest, fees, penalty fees etc.
♦ Can you afford that money? If you were responsible for the loan, how would you repay it? Would you have to sell your home or some other asset?
♦ Is the borrower trustworthy or is there a good chance they could renege on this loan?

In closing, let me repeat – take care and remember this above all – going guarantor means, if anything goes wrong, you ARE responsible for repaying that debt and the company who is owed the money will expect you to pay it!

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