Can Guarantor Loans Affect Credit Rating of the Guarantor

When someone becomes a guarantor, they agree to be a party to your loan repayments. This means that they agree to pay back your loan if you fail to do so. Or in other words, the lender or financial institution can demand repayment of the loan from the guarantor in the event the borrower fails to repay the debt.

Huge Responsibility

If the borrower does not have a favorable credit report, a guarantor’s credit rating can help them improve their credit score.  However, this does not rule out the risk factor that the guarantor is taking by becoming a co-signer in your loan agreement, which makes them liable for loan repayments if the borrower fails to do so.

Positive Effects

Becoming a guarantor could have a positive effect if the borrower is able to repay the loan as agreed. This will reflect on the credit score of both the borrower and the guarantor. Accounts paid as agreed are able to keep a favorable credit score, demonstrating a high degree of financial responsibility.

Negative Effects

Becoming a guarantor could be risky as well, especially in the event of payment default by the borrower. As a result the guarantor becomes liable to make the remaining payments. Failure to do so will have a bearing on your credit score and reflect negatively on your credit history. Signing up as a guarantor makes them legally bound to pay back the loan even if they do not get any of the loan amount.

 
Not only this, a guarantor who fails to make timely payments on behalf of the borrower will most likely receive debt collection calls from the lender and financial institution. In the worst case scenario, a guarantor can be sued for the loan default. Besides, if they lose in court, the judgment will reflect on their credit report, causing significant damage to their score.