Guarantor on a Personal Loan? 5 Risks You Need To Know About
June 10, 2019
Guarantor loans are highly sought after with fewer people having perfect credit. Unfortunately, a lot of lenders aren’t willing to take a risk on borrowers and that does call for guarantors. It’s frustrating because the borrower has every intention (and the ability) to repay the loan but the lender doesn’t see it that way, they only see the risk. That’s why there are so many in need of a guarantor loan. However, whether you’re happy to be a guarantor for someone you know, it’s still important to understand the risks associated with the loans.
You Accidentally Become a Co-Borrower Rather Than a Guarantor
While you might believe there’s no way an error could occur during the paperwork of the loan, think again. There have been occasions where a guarantor has been named as a co-borrower and that’s very different from a guarantor. Unfortunately, sometimes the problem lies in the small print; while other times it’s down to issues with the lender and the filling out of the loan application. It’s vital to know the risk so that you can hopefully avoid it! Loans with a guarantor may be risky for the guarantor more so than the actual borrower.
Your Credit Gets Ruined
Depending on what happens with the progression of the loan, and its repayments, there’s every possibility your credit could get ruined. How is that if the guarantor doesn’t get the money? Your name is associated with the loan and since you’ve guaranteed the loan will be repaid back, it’s on your head and your credit report! Guarantor loans are simple enough to apply for, but guarantors can often get the short end of the stick!
You’re stuck with Repayments after a Default
Let’s say your friend takes out three thousand dollars but after a few months they default on the loan and stop paying. When the borrower defaults, the guarantor is the one the lender’s going after. Why is that if they didn’t get any money? The guarantor signed onto guarantee payment and that means they’re liable for the repayment. Loans with a guarantor have risks like that, and it’s something which far too many guarantors aren’t aware of.
It’s Harder to Get Future Loan
Did you know it’s a lot tougher to be eligible for a loan in the future? Guarantor loans have that risk and it’s deeply frustrating when it prevents you getting a loan later on. If you wanted to get a loan you might have to go to a specialist lender instead of a standard lender. You might even need a guarantor! That’s a risk you have to know about when you plan to be a guarantor. See more.
You Have Fall Out With Friend
Let’s be honest, for the first couple of weeks, you don’t think twice about the loan but after a little while you start to get a few doubts creeping into your system. When the doubts creep in, you will probably badger your friends about the payment and that will lead to a fall out. Do you really want to fall out with your friend? You of course, do not want to fall out with the friend but it does happen, all because of the loan. When it comes to loans with a guarantor, there are risks with losing friends. You don’t want it but it’s a possibility.
Know the Risks
Acting as a guarantor can be a wonderful thing to do for a friend, and there may be many times when things go smoothly and without any issue. However, things don’t always go perfectly and that’s when things get out of control. You never can tell how a loan will progress or the friendship put at risk. That’s why you need to know about the risks so that you can make a careful decision about whether you’re happy to be a guarantor on guarantor loans.