# Implication of being a guarantor for friend's loan



## seanistaken (5 Jan 2010)

What are the potential implications of my being a guarantor for a 15k loan for a friend over a five year term?

About me: I have an excellent credit rating (I assume), 34 years old married, I have paid 2 car loans off, have paid a mortgage for the last 7 years, have a reasonable amount of savings and pay credit card monthly. No other debts.

If all went according to plan and the 15k was paid off in 5 years as planned.
How would it affect my financial status? Would it be taken into account if I wanted to re-mortgage to move house?  

While failure to repay the loan is highly unlikely what are the potential implications if something goes wrong. What could go wrong apart from no-payment that I may not know about from minor or serious issues.

Also I would appreciate any advice or experiences relating to similar situations. Would a bank be likely to accept a friend as a guarantor?

Thanks Sean.


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## mercman (5 Jan 2010)

*Re: Implication of being a guarantor for friends loan*



seanistaken said:


> Would a bank be likely to accept a friend as a guarantor?



It really is quite simple. The Bank look at this as a Commercial Transaction, not a frienship transaction. If your friend fails to make his repayents, the Bank will simply notify you and call in the guarantee.

From experience it is the easiest way to lose friend by guaranteeing a loan or by lending him/her money.


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## Bronte (6 Jan 2010)

seanistaken said:


> While failure to repay the loan is highly unlikely .


 
Why can't your friend get a loan on his own?

Can you afford the loan if things go wrong.

As mercman pointed out it's you that will be liable if he defaults and it can ruin friendships.


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## Brendan Burgess (6 Jan 2010)

I have heard people recently complaining that the banks wanted them to pay off loans which they had guaranteed. I have been asked how can they avoid having to honour their guarantee. 

This surprises me. A guarantee should not be taken lightly. You should ask yourself if you would be prepared to lend this person the money directly. If not, don't guarantee them. 

If it's for a viable business or a serious medical operation, then it's worth the risk. If it's just to help them buy a flashy car or to get on the housing ladder, then you should decline.


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## PyritePete (6 Jan 2010)

Brendan said:


> I have heard people recently complaining that the banks wanted them to pay off loans which they had guaranteed. I have been asked how can they avoid having to honour their guarantee.
> 
> This surprises me. A guarantee should not be taken lightly. You should ask yourself if you would be prepared to lend this person the money directly. If not, don't guarantee them.
> 
> If it's for a viable business or a serious medical operation, then it's worth the risk. If it's just to help them buy a flashy car or to get on the housing ladder, then you should decline.


 
+1. we were a guarantor for a family relative and 3 payments were not paid on time within 12 months. Think long and hard about this...IMHO friends/family and business dont really go hand in hand.


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## seanistaken (6 Jan 2010)

Thanks for all the replies everyone. The loan is not for a business or car but for education. 

Can anyone tell me if being a guarantor will affect my ability to get credit or a future mortgage? Will they could the 15k as a debt of mine when assessing my assets?


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## Bronte (6 Jan 2010)

seanistaken said:


> Can anyone tell me if being a guarantor will affect my ability to get credit or a future mortgage? Will they could the 15k as a debt of mine when assessing my assets?


 
I would assume that they would as you are ultimately liable for the debt.  If you think you will need a loan soon and this would mean you can't get it then you should decline going guarantor.  It's a perfectaly valid reason for not going guarantor for.

Education is a very good thing to go guarantor for.


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## Bronte (6 Jan 2010)

Brendan said:


> I have heard people recently complaining that the banks wanted them to pay off loans which they had guaranteed. I have been asked how can they avoid having to honour their guarantee.
> .


 
Has the guarantee been called in where there is no default?


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## seanistaken (6 Jan 2010)

I am likely to be looking for a loan in the near future as we plan to have kids soon. We will likely sell current house in the next few (3-4) years and depending on how things go may need to get more money from the bank.


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## csirl (6 Jan 2010)

Remember that the fact that the bank is looking for a guarantor means that the banks consider your friend as having a high risk of default.


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## seanistaken (6 Jan 2010)

I understand that, thanks for the advice.


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