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There are times when a lender demands a guarantor before giving a loan to the borrower. A guarantor is basically a person who provides the guarantee on behalf of the borrower that the borrower will repay the loan in the allotted time period. Lenders usually ask for a guarantor when they are doubtful whether the borrower will repay the loan on time or not, or also when the borrower is under 18 years.

If the borrower is unable to repay the loan, then it becomes the responsibility of the guarantor to repay the loan to the lender and thus, being a guarantor is quite risky for several obvious reasons.

Things to consider before being a guarantor

Before becoming a guarantor, it is essential to ask these questions:

  • What is the basic need of being a guarantor? (whether the borrower has a poor credit history or other equivalent reasons?)
  • Does the borrower deserve enough to get a loan?
  • Is the choice for the loan a wise one for the borrower?
  • What can you offer as security and whether you would be willing to have that repossessed in chances of not being able to repay?

Protecting yourself as a guarantor

It is important to acknowledge that being a guarantor is not an easy task and it involves a lot of risk in it. Are you ready to be held responsible by the lender if the borrower fails to repay him? Therefore, there are some measures that can be taken in order to protect yourself while being a guarantor.

Limiting your liability

Most of the guarantees include all of the borrower’s obligations and these include their mortgage, credit card debt as well as other personal loans. It is wise to ask for a limited guarantee agreement which restricts the amount you will have to guarantee to the lender.

Ensure that you receive the documentation

While being a guarantor, it is essential to ask the lender to provide you with a copy of the credit agreement as well as a copy of the guarantee contract. The borrower should also further keep on informing the guarantor about any changes such as a reduction in the repayment period or a increase in the debtor’s obligations.

Furthermore, if the borrower is unable to repay and the lender begins the repossession procedure then he must send a repossession notice. If the guarantor doesn’t receive the notice, then his liability can be reduced.

If you find the credit contract to be a little more oppressive, then you are allowed as a guarantor to apply to the Court in order to change the contract.

Being careful while choosing security for the loan or credit contract:

If you agree to a ‘secured guarantee’ by offering items or property that can be taken by the lender as a repayment if the borrower is unable to repay, then it is important not to offer any possessions that have a greater value than the debt such as your house.

Written agreement with the borrower

A written agreement can be made with the borrower including the following pointers:

  • The debtor should keep you well informed of all the financial decisions
  • Permission to the debtor’s account in order to see the available money
  • Stating point to point that who will be responsible for what parts of the loan