Should you agree to be a guarantor?

Many financial organizations places offer unsecured loans. Those seeking a loan have to qualify such as having a regular job and providing evidence that they are permanently employed. There is one other thing those trying to get a loan need and  often this is the hardest part.  They often have to find one or more guarantors.

Who is a guarantor?

A guarantor is a person who guarantees to pay for someone else’s debt if he or she should default on a loan obligation. A guarantor acts as a co-signor of sorts, in that they pledge their own assets or services if a situation arises in which the original debtor cannot perform their obligations.

According to the Student Loans’ Bureau website, “Guarantors are being encouraged to know the applicant, and maintain some measure of contact throughout the loan. This will ensure that the student can be contacted and held accountable for repayment when the time arises.”

Those statements are very important for anyone planning to become a guarantor. It is not a decision to be made lightly.  The guarantor has to be willing to pay the debt that was incurred by the one taking the loan.

Factors to consider

Before agreeing to be a guarantor ask yourself the following questions:

Why does the borrower need a guarantor (do they have a poor credit history? Is it likely they will have problems making the repayments?)

Is the borrower responsible enough to have a loan?

Would you be willing and able to pay back the loan (plus interest and debt recovery costs) if the borrower can’t or won’t do so?

What would you list as security, and are you willing to risk having it repossessed if the money can’t be paid back?

The answer to those questions will determine if you can serve as a guarantor.

Protect Yourself

If you are going to be a guarantor there are some things you need to do to protect yourself.

You must ensure that you receive all the relevant documentation – when you are guaranteeing a loan or other consumer credit contract, the lender must give you a copy of key information about the credit agreement so that you know what obligations as a borrower are.

They must also give you a copy of the guarantee contract (a contract of guarantee must be in writing and must be signed, otherwise it cannot be enforced). For a credit contract, they have to do this before the guarantee contract is signed.

The creditor must inform you within five working days of any change to the credit contract which either increases the debtor’s obligations or shorten the payment period.

If the borrower misses payments and the creditor starts the repossession process, they must send you a copy of the repossession notices. If you do not receive the notices, your liability may be reduced.

If you determine that the risks outweigh the benefit then being a guarantor is not for you!

What do you think? Let me hear from you!

Teri Ann Renee Paisley

Gleaner online writer