In many cases of guarantor loan, it has been seen that the guarantor never evaluated the risk and possibilities which may affect him or her, while opting to become someone’s guarantor. Though it is not necessarily the case that becoming a loan guarantor will eventually cause financial, as well as legal troubles to you, but you must know the uncertainties first.
What Is A Guarantor Loan?
Quick loans is an unsecured loan, where the borrower has to bring a person who will act as a loan guarantor. Now, what does it mean?
It means the borrower is incapable of showing any financial stability of his or her own and may have bad credit history. Secured loans have not been assigned to him, as a result of which he is bringing a second person to the lender who will act as his loan guarantor.
Now obviously, the second person has to guarantee the lender that he or she will be able to repay that sum with interest in the said timeframe, else, he or she by their own will pay that amount.
Certainly, the primary risk factor in guarantor loan is that if in any circumstances the borrower failed to repay the amount, the guarantor will be totally liable.
How To Avoid Those Risks And Still Be A Loan Guarantor?
If the borrower has a bad credit history then it is obvious he or she will not be able to get a loan from the lenders, but if they bring a guarantor, then reputed lenders will lend them money usually ranging from £1,000-£15,000 at a really high-interest rate for 1-7 years.
However, if you are becoming a loan guarantor for your relative who is extremely in need of money, but cannot get it through the traditional ways, as because of poor credit, then you must make sure some important points according to Citizen’s Advice Bureau.
- If the loan is really necessary? If the borrower is truly in need of that loan?
- Why is the borrower not getting the loan in the previous places? Is it because of the poor credit? How is the borrower going to repay?
- Is the loan wise enough and the borrower is a genuine person?
- If the borrower is unable to pay the money, then will you be willing to repay the debt along with the recovery cost?
- What will you list as your security and also if you are willing it to be repossessed in case you also fail to repay the money?
After deciding upon all the above, you must ask the borrower to have a written agreement with you, where the debtor will always keep you informed of any major financial decisions, his or her financial statement, and how they are going to repay the loan amount in the future.
Becoming a loan guarantor is definitely risky, but you can always help your friend, relative, or any acquaintance to get his or her loan by becoming a loan guarantor after assessing all the facts practically.