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My WealthFinancial Trap: Being Guarantor for Somebody's Loan

Posted Jul 2010

Why is so dangerous to be guarantor for somebody’s loan? Why debt breaks friendships?

The banks are trying to ensure themselves from the risks by requiring guaranties for the loans. Sometimes they require mortgage, sometimes they require Guarantor ( Warrantor or Co-debtor ). If somebody asks you to be guarantor for his own loan, you are risking a lot.

Statistically, there is significant chance for guarantor to re-pay the debt of original debtor. Scenario is following. Your friend or cousin asks you to be his guarantor, for a loan. Of course, you want to help to your friend or debtor. After all, that is only formality. Anyway, the debtor will be paying installments for his loan, not you. But what if your friend, or cousin, becomes unable to continue to pay the installments, for whatsoever reason? Than you have to pay the rest of his loan. So you are risking being responsible for return of other’s debt. This idea is absurd. Why would you pay debts of other person?

Banks do not care who is paying, as long the money is coming back, with interest. If the debtor cannot repay, they will take it from you, as a guarantor. Legally, they have the full right to do it, since you have agreed and signed the contract.

The debtors can become insolvent for many reasons. They can stay out of job, they can become ill or die. Also, there is a certain number of people who simply plan to fraud somebody to repay their debts. They pretend to be your friend for a while, then they ask you to be the guarantor for the loan that they “desperately” need and later they disappear. After a while the bank agents knocks on your door. And then what? You can do nothing else but repay the rest of the debt of person who cheated you.

Furthermore, the banks require the loan guarantor for the debtors with poor credit credibility. If that person has a poor credibility to the bank, why that person has credibility at you? Having the poor credit credibility means that yor risk is even higher.

The banking industry is advertising their loans very aggressively. The people are turning to the consumerism more and more. They want to buy all what they need and even things that they do not need. If they do not have the money they will take a loan. In case that they need the guarantor, they will come to you. Of course, it is difficult to refuse somebody’s kind request. But before you do it, think well first. Does that person deserve to be his/her guarantor? If that person deserve that you return the debt for him/her, than it is better that you give the money to him/her right away. At least you save yourself from the bank’s interest rate.

The best choice of your would be not to become guarantor at all. Simply take your stance toward this issue and stay at your principles. Do not be the debtor. Be prepared to be asked to be debtor and be prepared to say NO. Why should you risk to repay the debts of other people?



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