You Need a Guarantor on a Loan?
If you have ever been approached by an individual that was trying to get a loan at a bank, the person that had been unsuccessful, they may have asked you would co-sign on the loan with them. If you have, you are asking you to be a guarantor. This is a very risky proposition on the part of the borrower as they are asking this individual to share in the responsibility of the loan that they are wanting to take out. There are several reasons why this could be beneficial, and likewise very detrimental, for a person that agrees to be a guarantor.
What type of person will need a guarantor? Read on to find out the answer to this and more.
Why Guarantors Are Needed On Some Loans?
The reason that a bank will request that a borrower find a
guarantor is that they are looking for an individual that can share in the
responsibility of the repayment of the loan plus interest. The reason for
asking for a guarantor is that they may not trust the person that is requesting
the money because they have a very poor credit rating.
Anyone that has a low credit score either has not built theirs up high enough, or they have missed multiple payments, causing their credit rating to go down. It is essentially an indicator of the trustworthiness of an individual, specifically those that are looking to take out a loan from a bank, and the low credit rating can compromise their ability to get the money that they need. This is why someone may ask you to be a guarantor, and there are actually benefits to doing so.
Check out this list of 5 things that you will not believe will affect your credit score! http://www.huffingtonpost.com/nextadvisorcom/5-things-you-wont-believe_b_5607286.html
Benefits Of Being A Guarantor
The first benefit of being a guarantor on a loan is that you can actually build up your credit rating. Since you are also responsible for the money that is being borrow, once it is repaid in a timely manner, this will reflect in a positive way on your credit rating. There are of course negative aspects to this such as the borrower default on the loan completely, leaving you completely responsible for its repayment. However, if you trust the person that is asking you to do this, and they have been responsible up until this point with making their payments, you will also benefit from improving your friendship.
After selecting one of the many different companies that require a guarantor for an unsecured loan, and you have agreed to work with borrower, it will only take a matter of hours for most of these loans to go through, allowing you to help this person in a very short period of time. If they are able to pay the loan off with their next paycheck, this will help your credit rating, and will also eliminate any potential setbacks such as a default on the loan. Likewise, if they make payments for several months, and ultimately pay it off, this will help both of your credit scores. The next time that someone asks you be a guarantor for a loan for them, you will now know what to expect.
Worried your finances are getting away from you? The following video will help you to make a budget using Excel.