Applying for a loan, depending on the circumstances, is often very stressful. Loans are generally approved after your credit file and ability to service the loan are assessed. In cases where a loan application cannot stand on its own merits, a credit provider will often suggest a guarantor is put forward to secure the loan. When this happens, it’s not uncommon for the guarantor to be a relative or a friend of the primary applicant. In these circumstances, it’s very important to think long and hard before you agree to act as a guarantor because acting as a guarantor comes with a swag of responsibilities. As a guarantor, if the loan falls into arrears you may be called upon to take over the payments. Clearly this situation is especially dangerous for the guarantor - especially if the guarantor is unable to afford the repayments. As previously stated, the guarantor is usually a friend or a family member so when they are approached to act as a guarantor, it’s very difficult to say no. The family member or friend naturally wants to be supportive and the loan applicant has every intention of paying the loan. Despite the loan applicant’s best intentions though, situations and circumstances change and there is no way anyone could give absolute assurance that they will be able to service the debt, no matter what. For instance, changes in employment, relationship breakdowns, injury or accidents, health issues and any sudden increase in costs will place pressure on anyone trying to service debt. It’s important therefore to really consider the consequences of acting as a guarantor before you agree to do so. Saying ”no” to becoming a guarantor is far easier said than done so if you are ever asked to act as a guarantor, it’s best to be upfront and honest in the first instance.

If you are interested in refinancing, contact the Debt Fix team for a free consultation.