Has somebody close to you asked you recently to be their loan guarantor but you aren’t sure as in the not too far future you are thinking about taking out a mortgage yourself and you are thinking about if they can get a loan out without a guarantor? You wouldn’t be the first one to take this into consideration when asked to be accountable for this huge responsibility. In this article we are going to cover if being a loan guarantor affects you when applying for a mortgage loan.
What is a loan guarantor?
A loan guarantor is someone who legally agrees to assume the responsibility of repaying a loan if the borrower is unable to repay the agreed amount. This means that should a loan be taken out and then the borrower is unable to pay back the agreed amounts, at the agreed times, then the loan guarantor is the one that then makes those payments. This means that if you are a loan guarantor on your friends repayments of a hundred dollars a month, and your friend is unable to pay any more payments, then you would be the one that needs to pay back those 100 dollars every month as the debt is now yours.
When would a loan guarantor be needed?
A loan guarantor would be needed in times when a person with a bad credit history needs to take out a loan, or if a person that doesn’t have a credit history needs to rent an apartment. A person, who has a bad credit history, can ask a close friend or family member, who has a good credit history to be listed as the loan guarantor and that would improve the chances of them getting their loan application approved. The downside of this however, is the aforementioned passing of the debt should the borrower be unable to pay back the payments. More details!
Does being a guarantor affect your chances of getting a mortgage?
Whilst being a loan guarantor does not affect the loan guarantor’s chances of getting a mortgage in general, it can lead to negative effects on the loan guarantors’ credit history if the borrower fails to pay back what they owe. This is because if they fail to pay back the loan then the loan guarantor takes on the debt and this would then in turn, affect their credit score. If this seems like too much of a financial risk for you then you could always suggest that the person get a loan without a guarantor.
To sum up, whilst being a loan guarantor for a friend or family member does not affect your chances of getting a mortgage directly, it can do if the borrower is unable to keep up with the payments, as you are now the one saddled with the debts. So, before agreeing to being a loan guarantor for a friend or family member you must have a serious think about who the person is. Is the person responsible with money but have just had bad luck, leading them to have a bad credit score? Or are they are not financially mature person? The answer to those questions should give you a clear idea as to if you should say yes or no to being their loan guarantor or if they should get out the loan without a guarantor. Check out this site: https://ezinearticles.com/?Important-Tips-On-Mortgage-Lending&id=8899190