Being a lender for a loan or a lender is the same as being in debt only to someone else. Having a debt has a lot in common with being at the top of a ladder, but before you climb into it you need to make sure that the base of it is firm and well supported so that you can climb with ease. It’s like having a steady and stable financial life. Not only that, in this publication we want to address exactly how being a guarantor can generate good headaches if all terms are not met by the one you entrusted your name, reputation or assets to.
Being a lender for friend, relative or family member loan may even seem like a nice thing, and give that feeling that you have done a good deed. That’s okay, but as this can also put many things in your life at risk, including finances, assets, clean name and even friendship.
Guarantor for loan !!!
While it is possible to be a loan backer for a friend and never face any negative consequences, most of the time it will not be worth it. Check out the five reasons why you should not be a friend loaner or anyone else who asks you for this favor.
1. You will be responsible for the loan
No matter how trusting or wonderful your friend is, he or she may end up defaulting on the loan you helped take away. Anything can happen, your friend may lose his job, get a divorce, or find out that a close family member needs help with medical treatment.
If your friend can not repay the money you borrowed, you would have to repay the loan yourself, since you are also a co-signer or guarantor.
2. Your Credit Can Make a Hit
If you are a guarantor of someone and he misses the payments by delaying the installments, your credit score may decrease. If this happens, it may be more difficult for you to buy a car, a home or get lower interest rates at your bank or at credit companies.
If your friend does not pay 2 to 3 installments due, the lender can trigger legal means and send your CPF to the credit protector, SPC and protective bodies. In the analysis of the lender, you are more likely to repay the loan, since your financial situation is more stable and probably has higher income.
3. Your property may be at risk
Sometimes a collateral-for-friendship can secure a loan with your own property on a home equity loan (mortgage). If you are (the guarantor) and put your car or home as collateral and your friend does not repay the loan, you could potentially lose your property a few months late, or you pay the arrears out of your own pocket.
4. You can end up with a long friendship
If you are forced to cover the cost of the loan that you have signed, you can certainly end up resenting your friend. After all, it can be difficult to keep friends with someone who can put or put your financial situation on alert.
5. It could be more difficult to obtain new loans
Being a lender for friend or relative loan, makes your eligibility and qualification for other loans much more difficult. For example, if you are guarantor of a car loan to someone else and you try to withdraw a personal loan, a lender may reject your application.
Note: Co-signing a loan to a friend will affect your debt to income ratio (margin for loans), ie the amount of debt you are paying compared to your gross monthly income. A lender may not want to lend money to someone who already has future credit and debt debts to pay.
So when invited to be a co-author or co-author of a loan, ponder and analyze the whole situation thinking about you and the financial commitment involved. Good luck!