If you’re considering acting as a loan guarantor for a friend or family member, it’s important to understand the rules and implications of doing so. A loan guarantor is someone who agrees to repay a loan if the borrower defaults. This means that you could be liable for the entire amount of the loan, plus interest and charges.
What are the risks of being a loan guarantor?
There are several risks associated with being a loan guarantor. These include:
- You could lose money if the borrower defaults on the loan.
- Your credit score could be damaged if you have to repay the loan.
- You could be sued by the lender if you fail to repay the loan.
What are the benefits of being a loan guarantor?
There are also some potential benefits to being a loan guarantor. These include:
- You can help someone you care about get a loan.
- You can improve your credit score if the borrower makes all of their payments on time.
- You can receive a fee from the lender for acting as a guarantor.
What should I consider before becoming a loan guarantor?
Before you agree to act as a loan guarantor, you should carefully consider the following:
- Your financial situation. Make sure you can afford to repay the loan if the borrower defaults.
- Your relationship with the borrower. Make sure you trust the borrower and believe that they will repay the loan.
- The loan terms. Understand the amount of the loan, the interest rate, and the repayment schedule.
What are the rules for loan guarantors?
The rules for loan guarantors vary depending on the lender and the loan amount. However, there are some general rules that apply to most loan guarantors. These include:
- You must be at least 18 years old.
- You must have a good credit score.
- You must have a steady income.
- You must be able to provide collateral for the loan.
What happens if the borrower defaults on the loan?
If the borrower defaults on the loan, the lender will contact the guarantor. The guarantor will be liable for the remaining balance on the loan. The guarantor can be sued by the lender if they fail to repay the loan.
How can I protect myself as a loan guarantor?
There are several things you can do to protect yourself as a loan guarantor. These include:
- Only guarantee loans for people you trust.
- Make sure you understand the loan terms.
- Get a written agreement from the borrower that states their obligation to repay the loan.
- Consider getting a co-signer on the loan.
Conclusion
Being a loan guarantor can be a risky but rewarding experience. By following these rules, you can protect yourself and help someone you care about get a loan.
