Think twice, thrice or more before becoming a guarantor for any loan from financial institutions

Picture source: bankinginfo.com.my

It is easy to say “yes” to someone who wants you to be a guarantor for a loan, especially if they are people close to you, for example your family members. In fact, some family members love using the excuse of “blood relationship” in order to coerce you to entering an agreement with them. But, have you thought about the consequences of doing so?

 

According to bankinginfo.com.my, “anyone can be a guarantor as long as the person can meet the legal requirements to be a guarantor. However, since a guarantor would be liable to pay the debts of the borrower in the event the borrower defaults, you should consider becoming a guarantor only if you are sure that you can pay the debts of the borrower in the unfortunate event that he/she fails to do so.”

 

Further to that, do you know that by agreeing to be a guarantor, you also increase your financial commitment? This implies that when you were to apply a loan in the future, the financial institutions (that are considering giving you a loan) will take into account the loan amount (proportionately) on the loan where you become a guarantor as your existing commitment. This further adds on your commitment and slims down your chance of getting a loan. In short, it affects your borrowing capacity.

 

Therefore, do think twice, thrice or more before saying “yes”. This is especially so if you have not owned any property yet and looking forward to owning one in the future. Well, if there are family members and close friends that coerce you into something that could potentially affect your financial stability in the future (in the name of “trust”), it could be a wiser choice to stay away from them. “Real” family members and close friends give a thought about people’s future as well, and not only think about their current short term needs. Remember that being a guarantor is a serious commitment. The fact that the financial institutions rejected someone’s loan and needed a guarantor for it to approve does reflect the capacity of the borrower to repay the loan.

 

For more information on being a guarantor, kindly go through: http://www.bankinginfo.com.my/_system/media/downloadables/guarantors.pdf

 

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