What Is A Loan Guarantor?
If you’ve ever taken out a loan or have had a child or relative take out a loan you’ve probably heard the term “guarantor.” But what exactly is a guarantor on a loan?
There is a lot of different terminology when it comes to taking out a loan. If you are applying for some kind of loan or something that requires payments you have the option to sign with someone that will share financial responsibility in case you suddenly become unable to pay. One of these scenarios is a guarantor.
What Is A Guarantor?
A guarantor is someone who guarantees something. In this case someone who guarantees that a loan will be repaid. A loan guarantor will sign on to a loan with someone to act essentially as insurance in case the primary borrower defaults on the loan. If the borrower defaults the responsibility falls to the cosigner of the loan (if there is one) and then the guarantor. The guarantor is then fully responsible to pay back the loan.
Why Would Someone Need A Guarantor?
You generally need a guarantor when you need to secure a loan but have a shaky credit history. Guarantors tend to be family members or business partners with solid credit. Having a guarantor can make it much easier securing a loan
What Are The Pros And Cons Of Being A Guarantor?
Being a guarantor can be risky. If you are a guarantor and the primary borrower defaults you are on the hook for a lot of money and that can ruin your credit. It can also burn bridges and ruin personal relationships. But on the flipside it can also help boost your own credit if it all goes well and it can help a family member or business partner build up their own credit! It is all about establishing trust and good communication before establishing this kind of financial relationship.
What Are The Pros And Cons Of Needing A Guarantor?
Having a guarantor may make getting a loan not only easier, but possible! The drawbacks tend to be on the side of the personal relationship. Sometimes it is hard asking someone to step into this role. Be sure you ask someone you can trust and who you can talk to openly. Communication is key!