The loan market has faced considerable scrutiny over the last years, and this is a scenario that has most lenders looking for ways to lower the risk levels especially when it comes to guarantor loans.
Being a guarantor means you are vouching for a person should things take an unexpected turn and there is default or payments. In most cases, such a thing is a tremendous leap of faith on the part of the guarantor, and this why the person who opts to take up such a responsibility is often a close family member. Close friends or even workmates and other close associates can choose to take such a burden.
Opting to be a guarantor is a huge decision that requires some lengthy thought; but what exactly should you consider before deciding to be a guarantor? Glo, a lending agency in the UK that deals with guarantor loans, offers some handy insights and advice on the essential elements of such lending that you should know before taking up the burden of being a guarantor. According to their resources, you will need to know the following:
Ensure You Know Them Well
Some people have an uncanny ability to coerce others into doing things for them, call it taking advantage of other or whatever you may, that is something they are blessed with. It is for your safety if you have an in-depth knowledge of the person you are vouching for if you have a solid relationship, the better. Any queries that you may have about their ability to honor their loan or about their character, then opt out of the deal. You will bear the full burden of the credit should they default on repayments or conveniently go missing.
Find Out Why They Are Borrowing
While it is curious not to pry into other people’s private life issues, standing in for a relative, friend, or colleague as a guarantor when they are borrowing does merit a bit of inquisitiveness. Find out why the person seeks the loan because you share the risk associated with the credit given; thus, know what the money is for before you agree to anything. It is not a bad idea; it is the smart thing to do given the circumstances. Say no to the request if the reasons for borrowing the money just fail to hold any water. Also, say no if you believe the borrowing is asking for an amount that is beyond their financial ability to even repay in full within the stipulated time.
Could You Help Them Financially?
It is wise to talk with the person in question before they take the loan; the aim is to understand the nature of their needs and if you lend them the money they need. It could be a significant amount if not the exact amount they require; but, the good thing is that it will be a less financial burden for them because they will not face the high interests that comes with taking loans. Also, the risk associated with borrowing money is lower for the both of you.
Consider being the guarantor only if you are not in a position to lend the borrower the money they seek. Just make sure you are contented with the reasons and character of the person in question, and also take into consideration your financial needs.
Do You Know a Better Alternative?
You may know of a credible lender with affordable terms and rates that you may suggest to your friend or relative that wants you to be his or her guarantor. The credit market is full of all manner of lenders, and they all are in the business of making profits from lending money. So it would be safer for you, and the borrower is the money is secured from a source that you know.
So, when asked to be a guarantor and you are not happy with the terms of the loan, you may still help your relative, friend, or colleague to get the money they need by recommending a suitable alternative. It could be a different type of loan or a cheaper and fair lender.
Being 100% comfortable with every element of the borrowing and repayment processes is vital if you are to be a guarantor. If you are not satisfied with any single aspect, then say no to the request. Why? Because you will shoulder the burdens of the loan should anything go wrong with the repayment.
Your Credit Rating Is Not Ideal
Understand that the burden of the guarantor loan will impact your credit rating. So, you should consider opting out if you have concerns about your credit score. Most creditors will look into your credit records to determine if you are a trustworthy candidate before they approve the loan. And given the risks associated with being a guarantor, it would be unwise to consider such a responsibility more so if you are in the process of rebuilding your credit rating. You will be shielding yourself from damaging your credit rating and denting your integrity.
You Don’t Agree With Loans
Lastly, it would make little sense to be a guarantor yet you do not agree with the concept of taking loans. But there are reputable creditors out there who offer excellent customer services and affordable rates; thus loans are not such a bad thing.
Nevertheless, borrowing loans should only be a last resort. They can be a way of building credit ratings, and such a chance is presented when you are a guarantor. You get to build your credit ratings even if the money borrowed will help another party in financial need.