What is a guarantor?

Are you considering taking out a loan but are unsure about the role of a guarantor? Or maybe you’re already in possession of one, and want to know more about the process. Either way, it’s important that you understand what exactly the function of a guarantor is before engaging with this type of agreement. In this article, we’ll explore what a guarantor is and how they can help make loan repayments easier for borrowers. We’ll also dive into other key factors to consider when deciding if getting a guarantor is right for you. So if you want to learn more about guarantors and their impact on loans, keep reading! Better Credit.

A guarantor is someone who takes on the responsibility of guaranteeing a loan for their loved one or friend. As guarantor, you are responsible for repaying the whole balance if and when your borrower fails to do so.

If an institution is hesitant to lend money, they may seek assurance by requiring a guarantee.

Before you make the decision to become a guarantor, consider your own financial situation and be sure that you understand the loan contract along with its associated risks.

If you’re feeling overwhelmed by a financial decision, take the weight off your shoulders and speak to a free and confidential financial broker. It’s easy, completely secure, and could be the best move you make today!

Know the risks of going guarantor

Before committing to guarantee a loan, be sure you’re aware of the potential risks. Use the same level of caution as if it were your own personal loan.

You may have to pay back the entire debt

If the borrower fails to make loan repayments, you will be responsible for the full amount of the unpaid debt plus interest. In addition, if payments are not met and your house or car was used as collateral for the loan agreement with lender, it could lead to repossession. Better Credit.

It could stop you getting a loan

If you intend to apply for a loan, your lender will likely require that you inform them if you are currently the guarantor on any other loans. This is important information and may influence their decision in whether or not they choose to lend money to you as it could affect repayment of the guaranteed loan.

You could get a bad credit report

In the event that you or the borrower fails to pay back a guaranteed loan, it will negatively affect your credit report and consequently make future borrowing endeavours more difficult. Better Credit.

It could damage your relationship

Taking on the role of a guarantor for someone you care about can have an adverse effect on your relationship if they are unable to pay back the loan.

If guaranteeing a loan doesn’t appeal to you, there are still other ways that you can assist. Maybe contributing towards the house deposit is an option? It’s worth considering!

If you’re feeling pressurised to be a guarantor on someone else’s loan, it may indicate that you are enduring financial abuse. Fortunately, there is help available for your situation.

Understand the loan contract

Before you put your signature on that loan guarantee, obtain the lender’s copy of the agreement beforehand. Make sure to assess every information and inquire in detail so you are absolutely certain what it is that you are signing up for! Better Credit.

Loan amount

To ensure you can handle the loan repayment, even if the borrower defaults, calculate all payments that must be made. This includes both principal and interest along with any other applicable fees or charges.

By guaranteeing the entire loan amount, you are taking on both the interest and principal of that debt. Therefore, it is best to guarantee a set sum so you can be aware of precisely how much needs to be repaid. This way, your liability will never exceed what was previously agreed upon. Better Credit.

Loan security

In some cases, you might have to offer a valuable asset — such as your home — as collateral. If the borrower defaults on repayment of the loan then, unfortunately, the lender may be forced to sell your house in order to recoup their losses.

Loan term

Although a loan with an extended repayment period may seem appealing, it will almost certainly cost you more in interest. It’s important to be mindful of potential long-term consequences when taking on debt without a fixed end date – such as an overdraft account. Better Credit.

Business loans

Before you agree to be a guarantor on a business loan, it is imperative that you thoroughly understand the language in the loan contract. Additionally, do your due diligence and research as much information about the business as possible before making your decision. Better Credit.

• Request a copy of the business plan to gain insight into its operations. Interview their accountant and review financial records for assurance that the company is financially stable with bright prospects ahead.

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