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Become a Loan Guarantor
What would you do if a friend or relative asked you to cosign or be the Guarantor on their loan? According to the Federal Trade Commission’s website, studies show that many cosigned loans go into default and the guarantor/cosigner ends up having to repay the loan. If you are asked to cosign a loan, you are being asked to take a risk that the lender is not willing to do. You will need to consider several factors before you become a guarantor.
Making the decision
Before you sign the paperwork, consider these factors:
- Can you repay the loan? If the borrower can’t pay, you are liable for the amount owed and in some cases, any fees or late charges that have been incurred.
- The cosigned loan will be considered one of your obligations when you apply for new credit. This may hamper your ability to get a loan of your own.
- Before you offer property to secure the loan, know that if the borrower defaults your property could be taken to pay off the loan.
- Ask the borrower for a copy of the loan contract. You may need it if there is ever a dispute. The lender is not required to give you this paperwork.
Despite the risks, there might be reasons why you might want to be a loan guarantor, like a child trying to get their first credit card. Set rules for your child before you cosign for the card, ask your financial institution for a low limit so your child can’t get into too much trouble. Or consider adding your child to your current card so the bills come to you.
The bottom line on being a guarantor for a loan? Make sure you’re comfortable with having to pay back the borrowed amount if your friend or family member can’t make the payments.