If a close friend approaches you to be a guarantor to his loan in Singapore, you might be tempted to simply agree. This is a wrong move. Indeed, you should only agree to guarantee a loan as the option of last resort. The reason for this is that the entire loan will be pushed to you if the borrower fails to repay. So, before you can append your signature to become a guarantor, here are important questions to ask.
What Is the Borrower’s Credit Score?
If the borrower is taking a loan when his/her credit score is poor, there is a risk of the loan having high-interest rates. In such a case, you will need to advise the borrower to start by improving the score. Here, you should consider yourself as the “borrower” and insist that anything that can pull down the interest of the loan in Singapore is done. Some things that you might recommend to improve the score include:
- Paying the current debts.
- Maintaining a good credit mix.
- Building a good credit history.
What Other Loan Credit Obligations Does the Borrower Have?
When applying for a loan in Singapore, the ability to repay it will depend on a number of attributes, and one of them is other credit obligations. So, you must ask the borrower to reveal other debts that he/she is paying per month. If the lender has so many loans, from credit card loans to mortgages and personal loans, there is a risk of defaulting. In such a case, you should ask the borrower to start by clearing the outstanding loans before you can become a guarantor.
Even if it might look like it is too much to ask, clearing the outstanding debts will assure you that your friend will not get overwhelmed. After clearing the debts, you should also ask the borrower to authorize his employer or bank to deduct the monthly payment for loan repayment to avoid making the monthly payment.
What is the Borrower’s Repayment Ability?
This is perhaps the biggest consideration for any guarantor to be. The aim of this question is to ensure that the borrower only takes what he/she can manage to pay. So, demand to get bank statements showing the borrower’s financial position over the last two years. If the lender is asking for more than he/she can repay, do not sign the guarantor agreement. Instead, ask the borrower to go for a smaller short-term loan that you can easily repay if he defaults.
Recommend an Alternative!
The truth about agreeing to become a loan guarantor is that you are roping yourself into another person’s financial life. So, if he messes it you also get into trouble. Therefore, it will be a good idea to recommend the borrower to go for an alternative, such as an unsecured personal loan in Singapore. Here, no guarantor is required and you will be out of the hook in the event that the borrower defaults paying the loan.
If your friend agrees to take a personal loan, the best way to apply and increase the chances of approval is using a loan comparison site, such as Lendela. Unlike conventional lenders, who are very stringent with the conditions for every loan, Lendela selects lenders willing to work with you before sending the application. This is why almost all applications made through Lendela are successful.
Do not just agree to become a guarantor for that loan; ask your friend to visit Lendela and make a direct application for a personal loan. It is easy, fast, and convenient for all.