Let’s say you have a business in mind that you want to do. Or you need additional cash to pay for your medical expenses or existing mortgage. Apparently, you can no longer borrow money from any of your relatives. Borrowing from your friends may not be a good option as well because let’s face it, they have needs too.
What is your next option? You apply for a loan, or a personal loan to be exact.
Here’s the thing: applying for a personal loan means you need collateral to guarantee your loan.
“I don’t have any property or car under my name. Paano na?” or “I have unpaid debts.
Don’t worry. You can still apply for a personal loan as long as you can find someone to guarantee the loan for you. Here’s how and why having a guarantor can help you with your loan application:
- Guarantor serves as a collateral for the loan you’re applying for. When you have a collateral, this means your loan is secured, which also means you have extra room for negotiating your loan terms.
- There is a higher chance that your loan application will be approved. Having a guarantor means your loan is secured, thereby giving lenders peace of mind that your loan will be repaid.
- This increases your credit worthiness as a debtor. This means lenders are willing to give you a lan because there is a lower risk of non-payment.
The next question is this: who should you get as your guarantor?
Your guarantor should meet the following requirements:
- Must be between 18 and 75 years of age
- Financially stable, meaning your guarantor is earning stable income every month
- Has good credit standing, which means no past due accounts or unpaid debts
- Met the minimum income requirement set forth by lenders
- Capable of making monthly payments in case of default
- A homeowner, although this qualification applies to some lenders
- All other qualifications required by your preferred lender.
The bottom line is your guarantor should be someone of legal age and who could help you pay your loan in case you are unable to do so.
Can your friend be your loan guarantor?
Believe it or not, yes, as long as he meets the requirements needed to be a guarantor. Ideally, your guarantor should be someone you trust like a close friend.
‘Apparently, this could be tricky. Any arrangement that involves money could potentially ruin relationships and surely, you don’t want that to happen.
What does it mean to be a guarantor?
The role of a guarantor is simple: to pay for the existing financial obligation in case the principal borrower is unable to pay due to unforeseen circumstances.
Despite that, guarantor will not have any share on the loan proceeds.
Aside from this, it’s not easy to find a guarantor who is willing to pay for your loan in case of default. That being said, here are some tips to help you guarantee your guarantor and make him say yes:
- The guarantee must be in writing. Consequently, it should specifically state how much the guarantor will be liable, if ever, possible circumstances that will make him liable for the loan, and the duration of the guarantee.
- Guarantee Agreement must be for one year first and may be renewed thereafter. The beauty of this arrangement is that once you can show to the lender that you are capable of paying the loan, then the guarantor may be released from his possible obligation.
- Make sure that your guarantor gets a copy of all the loan documents, especially the Credit Agreement or Loan Contract and Guarantee Agreement.
- In case of any changes in the terms of the loan, inform the guarantor right away.
- Ensure your guarantor that he will only guarantee the loan up to the amount equivalent to the loan amount. This is to give assurance to him that he won’t be made liable for a loan beyond what was agreed upon.
- Keep your guarantor updated on what’s happening in your loan. This includes any financial decisions involving the loan he guaranteed, any advance payment or availment, and how much money you have among others.
- Always be visible and easy to contact. Even if you are overseas, make sure you keep communication lines open. Don’t make it hard for your guarantor to contact you.
- Ensure your solvency, which also includes doing everything you can to pay for your loan.
More importantly, there should be mutual trust between you and your guarantor. If you can’t trust each other, then it is best to move on and look for a new one who could help.
Even if you have a guarantor, make sure and do your best to pay for your loan. Don’t let anyone be burdened on an obligation that benefited you. Again, he is merely a guarantee and a form of security.