Many people are unsure as to whether they should take on the role of a guarantor when it comes to a loan. It is important to understand the pros and cons of this position and weight them very carefully as it could impact the quality of your own life.
What is a Guarantor?
Let’s look a little deeper at what a guarantor actually is. In its simplest form, a guarantor is someone who is going to hold responsibility for the debt of someone in case they default on the payments. Whoever signs as the guarantor of the loan is the one who is ultimately responsible for the loan to paid in full.
Visiting pages like http://www.guarantorloansuk.net will help you understand the position the loan guarantor is in before guaranteeing the loan. You may want to know what type of income they are currently bringing in and if they are already in some form of debt. This makes it more likely that the guarantor will have to pay part or all of the loan.
A bank is only going to ask for a guarantor if they are not satisfied with the financial status or credit rating of the borrower, in this sense it is important to proceed very carefully.
Why Have a Guarantor?
There are times when a bank will ask for a guarantor if they simply feel they do not have enough credit references. In fact, there are several reasons why banks ask for a guarantor.
- The bank may be concerned that the applicant does not have a transferable job.
- It could simply mean that the applicant’s job takes them out of the country for extended periods of time.
- The borrower might have applied for a loan and used an address other than their permanent address.
It is important to fully understand that no matter who you sign for, if they default on the loan it is you who will be responsible for the full amount that has not been paid. The bank will approach you if the debt is not paid. You must know that a bank is under full authority to seize any of your assets in order to reclaim the amount of the debt. This includes property, bank accounts, and cash, this leaves you very vulnerable to bankruptcy.
The Supreme Court has stated that once a guarantor has committed to the loan, they are unable to back out of the commitment.
In addition, your credit rating can be affected in a negative way if the payments are defaulted on. Almost all banks will check the credit rating and status of the loan that you have signed on as a guarantor. Before you will be able to apply for a new loan, the remaining amount of the guaranteed loan must be repaid. Any past due payments will also show up on your credit report which will have a negative effect when applying for credit cards and loans. In fact, it may prevent you from getting any type of loan.
Knowing all of this information it is essential that you do your research not only on the loan but the person you will be guaranteeing for. You need to know in which conditions you will have to pay back the full amount of the loan as well as if the loan amount can be increased at any time without your consent. The most important aspect to realize is once you have signed on the dotted line there is no turning back.
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