Guarantor Loans in the UK – Tips for Becoming a Guarantor
The state of the financial market is not that great at the moment. It is getting harder and harder for people to secure loans from banks. In such a scenario, guarantor loans in the UK can prove to be a great way for a person to get the money that he needs. However, one must have a guarantor if they want to apply for such a loan. The guarantor can be anyone who is not financially linked to the borrower. Guarantors have to be wary of the consequences that they will have to face if the borrower defaults or lags behind on his loan repayments. If you are thinking about becoming a guarantor for someone then you must keep the following tips in mind.
Trustworthiness of the Borrower
Before you sign on to become the guarantor, you must make sure that the borrower you are vouching for is trustworthy and is capable of repaying the loan or not. There is a high chance that the person you are becoming a guarantor for is your relative or close friend but this does not mean that you should let emotions get in the way. You should always consider becoming a guarantor as a business deal and check the financial capacity of the borrower before taking on this responsibility. Never make this decision hastily as you would regret it afterwards if the borrower defaults.
Understand the Risks
Becoming a guarantor is a very risky proposition. There are a number of risks involved and you should consider them before you take the decision of becoming someone’s guarantor. The first major risk is that you will have to pay the loan if the borrower fails to keep up with his loan repayments. Secondly, there is a chance that you might have to sell your home if you do not have the funds available for repaying the loan amount. Another risk involved with becoming a guarantor is that it becomes quite difficult for you to get a loan yourself. The lenders usually consider the guarantor loan as a liability when assessing your loan request.
Prepare for Worst Case Scenario
It is a good idea for a guarantor to prepare for worst case scenarios if he takes up this responsibility. For instance, the guarantor must make sure that he has the funds available for repaying the loan in case the borrower becomes unable to keep up with the loan repayments because of illness or loss of job. Moreover, it is also important that you remain in close contact with the borrower to know how he is dealing with the loan repayments. This can help you in getting an idea if you might be required to repay the loan and can thus arrange for them in time.
Thus, it is important that you keep all these tips in mind when deciding to become a guarantor for anyone. You should also take legal advice before taking such a decision to fully understand the risks involved.