Asked to be a friend’s loan guarantor? Know these financial risks before you agree to help, and when to avoid saying yes
Mint · Eshita Gain ·
A loan guarantor may be responsible for a borrower’s debt, interest and penalties after default. Before signing, one should consider certain risks and know when to decline the arrangement.
Your friend asks you to stand as a guarantor for their loan and saying yes may seem like a simple way to help them. But, one must understand that the decision comes with financial and legal responsibilities that can outlast the friendship.
A loan guarantor is an individual who agrees to repay the debt if the borrower fails to do so at the time. Banks may ask for one when the borrower does not meet their income or credit score requirements, or when the loan amount is substantial or the repayment period is long.
However, becoming a guarantor is not just a formality. You sign a legally binding agreement, known as a guarantee, which outlines your obligation to repay the borrower's loan in case they end up defaulting.