As a company offering financial advice, we have seen the effect a poorly informed decision to sign as a guarantor on a tenant guarantor loan. If you are ever asked to sign as one for someone, it’s best to do some real thinking before you agree.
In this article, we are going to take a good look at the considerations you should undertake before signing as a guarantor.
First things first, however.
The definition of a guarantor
Normally, a guarantor is someone who has agreed to co-sign such a loan and by doing so, they agree to pay the loan on the person’s behalf should they miss an instalment. Usually, it is a close friend, more often than not a family member, but in some instances, we have even seen work colleagues agree to be guarantors for the person seeking the loan. This is not something we would recommend, however.
Remember, by signing as a guarantor, you are legally bound and obliged to pay the loan instalments if the person who received the loan amount defaults in any way.
Considerations before signing as a guarantor on a tenant guarantor loan
Now before you sign on the dotted line, there are a number of considerations that you should go through in great detail.
Begin by fully understanding what is expected of you. In a nutshell, you will pay if the loanee doesn’t. It is that simple and more importantly, you are legally bound to do so. If you have any queries about this, make sure you ask the financial institution offering the loan. Often, they will have a slight grace period for the loanee to come up with the money if they miss the payment but not all of them will have this.
Now ask yourself the question if you can indeed afford to take on the debt of an individual should they stop paying their loan and be difficult to track down. Believe it or not, we have seen families torn apart by a poorly judged agreement to become a guarantor on a tenant guarantor loan. In one instance, a mother signed for a son who had a substance abuse problem. Within two months, the money (which he was going to use to further his studies) had mostly been used up and the son had jetted off to the USA leaving the mother to pay back the loan.
Trust plays an important part in a loan such as this. Determine if the person taking out the loan can be trusted to make every attempt to pay back monthly instalments. In times like this, trust your gut feeling. We have found that often, it is the right thing to do. If you are being pressured into acting as a guarantor by a member of your family, rather opt not to sign the loan contract, even if they make you feel guilty. Emotional guilt is a strong thing however, do your best to overcome it otherwise you might sit with a massive financial burden. Remember, there is nothing in it for you when you sign as a guarantor, just the knowledge that you are helping someone.
If you have any queries about these loan products, becoming a guarantor or any other general financial questions, please do not hesitate to contact one of our staff. We will be more than pleased to offer you sound advice.