It’s not uncommon to be asked to guarantee a loan for someone else, usually a friend or family member.
It may seem to be a great way to help a child or relative get that car they want, buy a business or get into the property market, however all loans come with risks. It’s important to know the potential downsides of going guarantor, and what to consider if you’re thinking about it.
- You might have to pay back the whole loan (plus interest) if the borrower defaults on paying. If you can’t make the payments, the lender could repossess any security you put forward to guarantee the loan.
- Going guarantor for someone else could stop you getting a loan in the future. A lender may decide they won’t lend to you if you are guaranteeing someone else’s loan.
- Your relationship with the borrower may be damaged if the friend or family member can’t pay the loan back. The last thing anyone needs is tension and arguments over a failed loan.
- Make sure you understand the loan amount and make sure you can cover the repayments if the borrower doesn’t pay.
- If you have to use an asset, like your house or your car, as security be fully aware you could lose it if things turn bad.
- Be sure you are prepared to be guarantor for the full term of the loan – check the contract to see how long you’ll be responsible.
- If you’re guaranteeing a business loan it’s extremely important to find out all you can about the business you’re guaranteeing. Are there financial figures? Has the business been trading profitably and can afford the loan repayments? If it’s a new business has enough homework been done to give it the best chance of being success? Speak to the accountant and ensure you leave no stone un-turned in establishing the viability of the business.
In the wash up, going Guarantor for someone else’s loan is a big responsibility. Go in with your eyes open and understand what you’re committing to before signing any paperwork.
If you would like to discuss your loan options with us or one of our highly recommended partners, give the team at Steve May a call and start a conversation today.
You need to consider with your financial planner (or adviser), your objectives, financial situation and your particular needs prior to making an investment decision. Sensibly Pty Ltd and its authorised representatives (or credit representatives) do not accept liability for any errors or omissions of information supplied on this website
Nick Shanley, Steve May, Luke Styles and Shanley Financial Planning T/A Steve May Financial Services are Authorised Representatives / Corporate Authorised Representative of Sensibly Pty Ltd, AFSL 533923. Please refer to our website at www.stevemayfs.com.au to reference our Financial Services Guides.
