Guarantors beware of delinquent borrowers
"Do not be among those who give pledges,
Among those who become guarantors for debts.
If you have nothing with which to pay,
Why should he take your bed from under you?"
– Proverbs 22:26-27
All too often, we hear of cases where persons, in order to assist others in acquiring credit, extend themselves by acting as guarantors for their loans. In several instances, this ends disastrously for the guarantor, because the ones getting the loan renege on their payment, leaving the hapless 'Good Samaritan' holding the proverbial bag.
This can have disastrous consequences for the guarantor, particularly if they have a family depending on them financially.
Recently, The Gleaner featured an article about two schoolteachers who are now facing financial ruin and are even struggling to meet their basic family obligations because they acted as guarantors for a fellow teacher who has not serviced her loan. They are now stuck with a huge bill arising from their decision to be helpful.
Family and Religion reached out to Rev Dr Nicolette Evans, an entrepreneur who has a wealth of experience in banking and finance, as well as credit financing, for advice on how to proceed if one is asked to be a guarantor. She had strong words of warning for those who are considering to take the plunge.
Before signing on the dotted line, Evans said, it is prudent to discuss it with your family first and inform them of your decision.
“You need to advise your family, who may be affected by your decision, so that, in the event that the person defaults, they know exactly what they are getting into,” she said.
For many, it is not easy to say ‘no’ when asked to be a guarantor, because the person doing the asking is usually a family member or close friend. Despite that, however, Evans is adamant that such a decision should not be taken lightly and one should never be afraid of being firm and saying no, if you feel that you will be exposed to financial jeopardy.
According to her, declining to act as a guarantor should be done in the spirit of love, as you let the person know calmly that you are not willing or able to do so.
Evans warned that your negative response can sometimes cause tension, especially if it is a close member of the family that you have turned down.
“It's quite likely that, when persons don’t get their way with you, they will assassinate your character. It’s something I see too often,” said Evans.
When it comes to signing as a guarantor for large sums of money, Evans said it is best to get legal advice before signing on the dotted line.
“You could have the lawyer insert the clause that, if the person defaults on the loan and leaves you with the bag, then you can take them to court to recover the loss or recover any payment made on behalf of the applicant or the borrower, by taking legal action,” she said.
Evans emphasised the need to think long and hard and remember your own family obligations before making a commitment to be a guarantor for a loan for others.
She said it is more problematic when the person is a relative, as many stand guarantor for student loans, a sibling buying a house or car, etc. While it is entered into with good intentions, life happens – job loss, accidents, etc, and it is with this in mind that Evans stressed the need for the guarantor to think long and hard about their own situation, their commitment to their own family, and if they are in a position to take on the loan should the unexpected happen.
“Think before you act ... . Be informed, be aware of the consequences and go into it with your eyes wide open,” she advised.