Probably one of the noblest things you can do for a relative or friend is to help them out financially. But if you don’t have the cash to support them yourself in times of dire need, then you can still help them out obtain financial assistance elsewhere by becoming their guarantor.
However, not in all cases should you agree to become a loan guarantor, no matter how good your intentions are. Here are the 3 situations where you should refuse to sign up as a guarantor for someone’s loan.
- You Don’t Really Have a Strong Relationship with the Applicant
You may feel obliged to do a favor for your partner’s sibling’s friend, but please don’t. If you don’t have a strong, personal connection with the person, you will find it difficult to gauge if that person is good with keeping up with their words. It’s actually more difficult to hold a person accountable if you don’t know them than if you do, so be careful who you’re putting your financial disposition at risk.
- You Have Doubts About the Applicant’s Repayment Capacity
Even if you do know the applicant and don’t need to conduct any background checks on them, you still shouldn’t say yes immediately. Even if you genuinely want to help out a friend or family member, you shouldn’t agree to guarantee their loan if you think they’re going to find it difficult meeting the repayments. Not only will it save yourself from having to shoulder the repayments, but you’re actually doing them a huge favor in not letting them take out credit that they can’t handle.
- You Have Doubts About Your Own Repayment Capacity
Lastly, you definitely have to say no on a guarantor loan if you are unsure of your own repayment capacity, in case things go wrong. Sure, no one would want things to get out of hand, but there are just circumstances that are beyond anyone’s control. Even if your applicant was honest from the beginning and meant well, you can never tell when one accident or emergency can ruin their repayment plans. This is why guarantors undergo rigorous credit and affordability checks, as if they were the applicant themselves.
Being a guarantor on someone’s loan, while definitely a nice thing to do for someone, always involves some risks, not just for yourself, but for the borrower. Make sure to weigh out the options very carefully before signing yourself up for some big responsibilities.