What are three facts to note before becoming a loan guarantor?
Posted: Jul 03, 2019
A guarantor for a loan is anyone who is legally bound to pay off the loan or the outstanding amount if the primary borrower is unable to pay it back. A guarantor can be anyone from colleagues, friends, or family, who co-signs the loan application along with the actual borrower. However, being a guarantor means a lot more than simply signing the loan documents. You must know how it can impact you before you become a guarantor. Take a look at these three facts to note before becoming a loan guarantor.
Impact on the credit score
When someone signs a loan agreement as a guarantor for someone else, and the loan gets defaulted, then it reflects on the credit score of the guarantor too. After a particular stage, with the primary borrower, the credit score of the guarantor will also get affected negatively. The companies dealing with credit information keep track of the loan repayment, and then the score of the guarantor and the borrower both are affected. If the borrower is timely regarding his or her payment, then it will reflect well on the credit rating of both the borrower and the guarantor.
Impact on personal assets
If you are a loan guarantor whose borrower is unable to repay the borrowed amount, the bank will come at first try to liquidate the assets of the primary borrower to get back the money. But before that, the lender will approach you because you were the guarantor for that borrowing. The lender might ask you to pay back the outstanding sum. If you are unable to pay back the loan, then the bank can seize and liquidate your personal assets, like property or land,legally to get back the pending amount. This situation can only get resolved when the borrower is ready to pay back the loan by selling off his property.
Impact on the credibility
Keeping in mind that in cases of a guarantor loan, as a guarantor, your lines of credit will be seen as open and that will directly affect your eligibility. If there is a default in the payment, then your credit score will plummet too, and you will have difficulty in securing loans for yourself in future. It is best to not rely on a primary borrower completely if he is a conscientious borrower because in that case, even the timely repayments will not help your credit score get much weight.
A Guarantor loan may be a form of unsecured consumer loan that needs each the receiver and a guarantor to sign the loan agreement. A sponsor is somebody World Health Organization takes on the responsibility of the loan debt from the receiver if the borrower defaults on their repayments. Guarantors are generally a devotee or relative of the receiver with a decent credit rating and regular financial gain.
Consider all three of these factors in your mind and weigh the consequences before saying yes to the actual borrower. It is also important to know all the details of the loan that the borrower is applying for, to be certain of what you are getting into.
Fareed is a graduate of computer science engineering, a writer and marketing consultant. he continues to study on Nano technology and its resulting benefits to achieving almost there.