You have decided to secure a loan at a reasonable interest.
However, securing a loan is a hustle in itself. Bad credit scoring or unsteady income leads to frequent and recurrent declines by lenders.
The lender seeks a ‘guarantee’ that his debt will be repaid. Enter the guarantor- your guardian angel who vouches on your behalf. In addition, he agrees to repay on your behalf if you fail to meet your obligations.
A guarantor is usually a close friend or family member who knows you personally. Therefore, he will bet on your honesty, integrity, and commitment: valuable principles on which banks refuse to bet.
This all seems good. However, choosing the right guarantor is not an easy task. Finding a guarantor is more than finding someone to sign the paperwork.
It is about selecting a financially secure person who understands the risks and responsibility as a guarantor and is willing to put his assets on the line if you fail to repay the loan.
Here is a guide to help you find the right guarantor to secure the loan for your future endeavours.
Table of Contents
1. Understand the Role of a Guarantor
There is a huge financial liability on the part of a guarantor in a guarantor loan. A guarantor agrees to repay the loan if the borrower fails to meet his financial obligations.
The borrower’s inability to repay can erode the guarantor’s assets. It can also negatively impact the guarantor’s credit profile and score. Besides, it strains the relationship between the guarantor and the lender.
So before you start asking someone to be your guarantor, it is essential to understand what the role entails. Make sure that your guarantor is fully aware of what’s at stake.
2. Pick Someone You Trust
Let’s confess, this one seems obvious: choose someone you trust completely. The same goes for his trust in you. A guarantor might be a close family member who trusts and believes in you.
A guarantor needs to be familiar with your financial journey and needs to be confident that you will manage your finances responsibly.
He needs to believe in your ability and integrity to repay even though a rational-minded creditor may have reasons to doubt otherwise.
Choosing someone who doesn’t trust you completely will lead to complications and troubles down the road.
3. Evaluate Their Financial Stability
This goes without saying. A good guarantor should be financially stable and sound to guarantee on your behalf.
Financial stability means a healthy income, minimal levels of debt, and good credit scoring. This assures the lender that the guarantor can pay the loan if the borrower defaults.
It in turn lessens the risk for the lender to issue the loan.
4. Discuss the Commitment Openly
A guarantor is taking a huge risk and responsibility on your behalf. Ensure they understand they are taking a legally binding responsibility to repay your loan if you fail.
Be open in your communications with him and do not hide potential pain points. Honesty and integrity are how you can reward your guarantor for his commitment to your financial endeavours.
5. Look for Experience and Understanding
An ideal guarantor should be familiar with financial matters. He should be aware of the responsibilities of being a guarantor.
He should be comfortable with the liability on his part if the borrower defaults on the loan.
6. Assess Their Relationship with the Lender
Every lender has certain rules regarding the choice of the loan. Besides these ground rules, a good relationship between a lender and a guarantor can greatly benefit you.
It can positively influence the approval process and may even secure your loan on better terms. It could positively influence the approval process if they’re an existing customer or have a strong credit history with the lender.
7. Have a Written Agreement
A written agreement is an elaborate charter outlining the responsibilities and obligations of the guarantor.
This document should amply describe what happens if the loan goes into default. This prevents any ambiguities and misunderstandings and provides clarity to both parties.
Final Thoughts
Choosing the right guarantor for your loan is not merely a ceremonial formality. Rather, it is an integral part of securing the loan on better terms. A financially well-versed, trustworthy, and credible person makes a more reliable guarantor.
Besides his financial acumen and trust capital, he should have well-picked, valuable assets and a considerably stable source of income. The borrower should be honest and truthful to his benefactor. He should openly communicate the terms of the loan. He should fulfil the guarantor’s trust by the timely repayment of the loan.
Choosing the right guarantor is a decision of significant outcomes in your financial endeavours. You should thoughtfully choose your guarantor when asking for a loan.
