by It’s a common problem; at the start of a relationship when everything’s rosy one partner puts the hard word on their better half to guarantee a loan, let’s say for a car or a holiday.
It all sounds like a great idea in the honeymoon phase, but when everything unravels and the relationship is over the guarantor can be left not only with a broken heart, but also with the responsibility of paying back the debt.
Often, the asset the loan relates to isn’t even in the guarantor’s possession when the relationship ends. It’s a tragic situation, so think very carefully about going guarantor for anyone, no matter how much you love them.
1. What you can do
Probably the best advice if you’re asked to guarantee a loan for a partner is to just say no. While this might cause short term pain, it might save a catastrophe in the long run if, for example, the relationship breaks up and your former partner loses their job and can’t repay the loan, leaving you to pick up the mess sometimes years after the relationship has ended.
If you do agree to guarantee a partner’s loan, the first thing to do is to know what you’re getting yourself in for. So be very clear about how much the loan is for and the repayment terms.
You must also fully understand your partner’s ability to pay back the debt. Do the sums yourself and figure out if they actually have the money – after living expenses – to pay the money back. If you can’t satisfy yourself they can do this, do not guarantee the loan.
2. Get help
Aside from assuring yourself your partner can repay the debt, get professional, independent advice before agreeing to be a guarantor. Talk the arrangement through with your solicitor or accountant and make sure they fully explain to you the implications if the loan defaults.
Be very clear that if your partner cannot repay a loan you have guaranteed you will have to. So make sure you have the money to do this.
3. Understand the consequences
Be fully aware about the ramifications of defaulting on a loan as a guarantor. If your partner cannot repay the loan and the loan defaults, the lender’s first port of call is the guarantor.
If you cannot also repay the loan, this will affect your credit rating. Information on credit defaults stays on a credit record for five years and your own ability to borrow money may be affected for this time if a loan you have guaranteed defaults.
4. Bottom line
Most of all don’t be naive and assume everything will be alright if you do decide to guarantee a loan. It only takes a couple of seconds to sign your life away but it can take years to repay the debts of a deadbeat former partner. You have been warned.