By guaranteeing a loan to a loved one, we become co-responsible for paying the debt. In case of any difficulties with paying subsequent installments, the guarantor will be forced to cover the debt.
In such a situation, should we agree to guarantee the loan, even if a relative asks us to do so? It is worth analyzing the whole case carefully and think about the risk that this person will experience difficulties with diligent repayment of the loan.
What is the guarantor responsible for?
Simply put, the guarantor will be required to repay the liability if the current financial situation prevents the actual borrower. In practice, it all depends on the provisions in the contract.
The guarantor can clearly define the framework in which it is acceptable to take responsibility for paying the liability. The guarantor can therefore only be responsible for a certain part of the amount or provide security for a certain period of time. Our creditworthiness influences which decision the loan company or bank makes.
When not to agree to the loan surety?
Good relationships cannot be the only incentive to guarantee someone’s loan . Especially when it is incurred for a very high amount. We put our financial stability at stake. Therefore, we should behave like a bank and check the creditworthiness of the person who asks us for such a favor. If we find that the current situation will not allow this person to pay back the loan conscientiously, we should refuse. After all, we don’t want to be responsible for paying off someone else’s debt out of our own pocket.
It should also be remembered that the loan guarantee adversely affects our credit standing . If we need credit ourselves during this period, we can face a negative decision. It is worth analyzing all pros and cons so as not to make a too hasty decision. If we are forced to refuse and do not want to break the relationship with a loved one, we can always offer a private loan as a financial support. It is definitely worth losing such an amount than later to be responsible for paying off large debts with interest.