Can the borrower afford the monthly installments?
Before you agree to become a guarantor for anyone, be sure to check the amount they want to borrow and whether they are capable of paying off this amount. While being able to help feels good, you aren’t exactly doing them any favor by letting them into a deal that they cannot sustain.
Furthermore, this will only cause you deeper burden.
Do you know and trust the borrower very well?
The element of trust is the biggest influencing factor for a guarantor loan to work successfully. The guarantor and the borrower must have history, and should be able to provide proof that they know each other very well. In fact, the lender’s decision will rely highly on that trust. If they see that the guarantor knows and trusts the borrower well enough to agree to co-sign the loan, the lender will be more confident in lending the money.
Can you afford paying the installments yourself if the borrower fails to do so?
It is your duty as a guarantor to take over any remaining balances left by the borrower if they fail to hold up to their end of the deal, no matter if this amount is big or small. This is the reasons why strict credit and affordability checks are employed upon you in the first place, to ensure that whatever happens complete payments will be received by the lender.
Can you still afford the repayments if something changes in your financial situation?
While you may be willing to take responsibility over the debt left by the borrower, it’s important to consider your own financial situation. Do you have a permanent job, which you are likely to keep for long? Do you earn more than enough to make debt repayments on your borrower’s behalf?
Will debt repayments affect you financially, and more importantly, can you sustain the repayments until the very end without putting yourself into bad debt as well?
Are you a homeowner?
Some lenders may tend to require that the guarantor is a homeowner, especially if the amount to be borrowed is particularly huge. It’s wise to check how much equity is left in your home, and more importantly, ask yourself if you are willing to put your own property down on the line in order to help other people.
Are you dealing with a reputable lender?
Sometimes all it takes is your permission for a guarantor loan to start, especially since most applications today are done online. Typically, aside from informing you in advance, the borrower will only have to send you a PIN from the lender’s site that you will have to use in order to approve the guarantor request. But it pays to be involved with your borrower’s application. Before sending your requirements and electronic signature, browse around the site, study the terms and conditions, and take the time to verify whether they are authorised to operate and have the legal permits.