Reviewing document before signing as guarantor is paramount
The Bank of Ghana’s advisory on financial literacy has outlined six essential factors to consider before guaranteeing a loan for someone else.
These factors range from understanding the terms involved to realizing the legal ramifications, seeking expert advice, and other crucial considerations.
Individuals must take these factors seriously to avoid facing severe consequences if the loan conditions are breached.
Here are the six factors to consider before acting as a guarantor in a loan deal:
1. Understand the role of a guarantor
A guarantor is responsible for repaying the loan if the borrower defaults on payment. This means the guarantor will settle the debt, including interest, when necessary.
2. Recognize your legal and financial responsibility
Acting as a guarantor means the loan agreement will be documented and recognized by the legal system. Failure to fulfill the obligation will have serious consequences. Therefore, one should be cautious about their financial worth, as it could be jeopardized by serving as a guarantor.
3. Evaluate the borrower’s ability to pay
It is crucial to ensure the borrower is capable of repaying the loan, considering their financial state. The guarantor should verify that the borrower has a stable income and a contingency plan for loan repayment to avoid future controversies.
4. Review the loan agreement carefully
Before signing a loan agreement, one must have an in-depth understanding of the terms and conditions.
Signing documents without full knowledge of the conditions and implications could endanger one’s finances or reputation if things go wrong.
5. Do not rely solely on trust or relationships
Personal relationships should not be the reason for guaranteeing a loan. Instead, consider the person’s financial ability to make repayment.
Conduct due diligence on the borrower’s repayment track record to make an informed decision, as defaulting on the loan will place a financial burden on the guarantor.
6. Seek independent advice if in doubt
If unsure about financial terms and conditions, consult an expert for advice before signing loan documents as a guarantor. Private financial advisors can help clarify doubts and prevent complications in the future.
SB/MA