Are you considering of taking out a loan with the help of a guarantor? You have to keep in mind that this type of loan requires a second person, who will take the responsibility of paying off your debt in case you default in payment. This individual will take this huge risk thus it is very important that you make a well-informed decision prior to your application. Here are a few factors to think about:
Do you really need to get a guarantor loan? Is it something that can’t be delayed? Can’t you find other ways to solve your problem? These are the questions that you have to ask yourself before borrowing money from a lender. Applying for a loan – regardless of the type that you want to get – is a responsibility.
- Annual Percentage Rate
APR for guarantor loans vary according to the lenders. Make an effort to research on a number of sites that offer loans and compare their annual percentage rates. More often than not, the best rates are offered to borrowers whose guarantors own a home and are willing to use that as a guarantee of payment. Apparently, they make lenders feel secure with the money they are loaning.
- Capacity to Pay
You are applying for loan because you are in deep financial trouble. You hope that this can help you solve or at least lighten your financial burden. However, if you are not sure about your ability to pay off the loan, stop or postpone your plan until you are able to know where your funds for the monthly payment will come from – or else, you may only make your present situation worse. You may also waste your time and effort applying because the lender can easily gauge if you have the financial means to cough up the amount each month. It will check on your income, your credit history, assets and liabilities and the eagerness of the guarantor to help you and to take on the responsibility of paying off your loan should you fail to do so.
Likewise, if you have made a promise to the guarantor that you will not drag him or her into huge financial mess, you should keep that, otherwise your relationship will be tainted and surely you do not want that to happen.
- Monthly Amortization
To avoid misunderstanding, it is also important that you discuss with your guarantor how you plan to pay the loan. Is your monthly salary enough to cover all your monthly expenses, including your loan amortization? Try to make realistic computations first. Are you thinking of looking for (or do you have already have an) extra job? You should not get your friend, relative or co-worker in trouble.
Apparently, this is something that you should think about very carefully. Not all of your friends or relatives will agree to become your guarantor. They know the risk that they are faced with in case they consent to your request. If you have a spouse, it’s not easy to have him as the second person because he or she knows your problem very well. But if it is not possible, seek the help of someone close to you so you do not have to explain so much because he or she truly understands your situation.