Is being a Personal Loan Guarantor a wise decision?
There are risks involved in terms of lending a loan, and even more risks to be a guarantor for someone’s personal loan. It is not advisable to do this if you do not know the person.
Usually, in cases of unsecured loans, where the lending company does not have collateral to settle for your outstanding than a guarantor is required to settle this type of debt.
Before any loans is given, your credit history is calculated, and you are rated in terms of getting a personal loan. But sometimes with bad credit scores, your application can be denied. In such a scenario, you might need a guarantor to avail this facility.
Your loan amount, and the interest rate depends on the history of your guarantor’s credit score.
Loan against a guarantor can be very useful and beneficial for those who have been rejected for a loan. But risks are more to the guarantor, than the person who’s applying, as the bank will settle the amount with the guarantor in case the borrower is unable to pay his outstanding.
Here are some of the things you should keep in mind before being a guarantor for someone’s loan:
The reason of getting the loan should be a responsible one. E.g. car repair, home renovation, student fee, or hospital expenses.
Also, the guarantor should trust the person, or mostly the guarantor should be helping a family member so that you are assured that the person is going to pay or help you pay off his loan. Mostly people get a loan for someone close, who they can trust.
One of the biggest advantages of being a guarantor is that your credit history can help someone get a loan, at a very low-interest rate, and desired amount.
Moreover, the credit scores of a guarantor plays a very important role. And also, at the time of application, the guarantor will be responsible for settling the loan, if the borrower is unable to pay off the loan.
Before you help someone to get the loan, you should let the concerned person build on his credit score first. By helping the person pay his/her bills on time, and work towards your credit rating, this can help the individual get the loan, by himself.
But in case you really get into a situation where you must help the person, by being his/her guarantor, you should be very careful and always do your homework, in terms of whom do you want to support for this otherwise you will get stuck in a very bad situation.
Also Read: What Role Does the Guarantor Play in A Personal Loan?
Being a personal loan guarantor is not easy, you should be aware that also affects your credit rating, as its mentioned in your rating that you have been assigned as the guarantor for someone’s loan.
If the borrower is unable to pay his EMI on time, even you will get affected by this on your credit score and will be marked as a defaulter. So, take this decision only after lots of careful consideration.
Share this:
Category: Loans
