Becoming a guarantor sounds like you’re just helping a relative or friend get a loan. However, it’s more than just signing a piece of paper. Agreeing to be a guarantor means you become legally liable to pay their loan if they are unable to. Because of this, you should consider things before agreeing to become a guarantor. Here are some questions you need to ask before signing a loan contract.
Can you afford the loan?
If your family or friend fails to make payments or pay off the loan, you will end up paying for them. Before you make a decision, make sure that you can afford the payments first.
Can the borrower afford to pay the loan?
It’s not always easy to determine whether your friend or relative can afford to pay off the loan. They may appear financially stable, but actually, may have difficulties. The best way to determine this is to check his or her credit rating or ask the lender or borrower to share their credit information.
What are the terms and conditions of the loan?
Before agreeing to sign as a guarantor you must understand the terms and conditions of the loan. You will only put yourself at risk if you don’t know the details beforehand. It’s important to read the fine print and understand every detail of the loan.
What are the consequences if you can’t pay?
If you can’t pay off your friend or relative’s debt, then the lender will also chase you for recovery of the debt. They may seize your property to pay off the debt. They can garnish your wages. Worst of all, it will leave you in a terrible financial position.