What is a Guarantor and Why Do They Matter When Getting a Personal Loan?

When it comes to applying for a service, loan, or lease, having a strong credit history and the income to make the payments can be a deciding factor in whether or not you get approved. But what happens when you don’t have either of these things? Fortunately, there is another option: having a guarantor.

What is a Guarantor?

A guarantor is someone who agrees to take on the financial responsibility of a loan or service if the primary borrower is unable to make payments. This means that if the primary borrower defaults on the loan or fails to meet the terms of the service, the guarantor is legally obligated to make the payments.

In the case of a loan, the guarantor is usually a close friend or family member of the borrower who has a good credit score and a steady income. The guarantor essentially agrees to act as a co-signer and take on the same financial responsibility as the borrower.

Why Would You Need a Guarantor?

If you have a limited or poor credit history or an unstable income, a lender may require you to have a guarantor in order to approve your loan or service. This is because the lender wants to be sure that the loan or service will be repaid, and having a guarantor can assure them that the payments will be made.

Having a guarantor can also make it easier for borrowers to get approved for a loan or service when their credit score or income would not normally qualify them. In some cases, having a guarantor can also help you get a lower interest rate or better terms on the loan or service.

What Are the Risks of Being a Guarantor?

Being a guarantor can be a risky proposition. Not only are you legally obligated to make payments if the primary borrower is unable to do so, but you are also putting your own credit score and financial stability at risk.

If the primary borrower fails to make payments on the loan or service, the lender can come after you for the full amount of the loan or service. This means that your credit score could be negatively impacted, and you could be left with a large amount of debt that you are responsible for paying off.

Breaking Down the Pros and Cons of Having a Guarantor For Your Personal Loans

Having a guarantor for your personal loans is a great way to secure a lower interest rate on the loan and improve your chances of getting approved. However, there are some pros and cons to consider before making this decision.

Pros of Having a Guarantor

  1. Lower Interest Rates: Guarantors can be seen as a form of collateral, so having one can help you qualify for a lower interest rate on your loan. This can save you a significant amount of money over the life of the loan.
  1. Easier Approval: Having a guarantor can make it easier for you to get approved for a loan, as lenders will be more willing to take the risk knowing that someone else is standing behind the loan.
  1. Greater Access to Funds: With a guarantor, you’ll have access to larger loan amounts than you would without one. This can be particularly helpful if you need a large amount of money for a specific purpose, such as starting a business or making a large purchase.

Cons of Having a Guarantor

  1. Responsibility for Another Person: When you have a guarantor, you are responsible for not only your own loan payments, but also those of the guarantor. If you fail to make your payments, the guarantor will be responsible for paying off the loan.
  1. Pressure on the Guarantor: The guarantor is taking a risk by agreeing to be responsible for someone else’s loan. This can put a lot of pressure on the guarantor and can be a source of stress and worry.
  1. Risk of Default: If the borrower defaults on the loan, the guarantor is responsible for paying off the debt. This can be a financial burden for the guarantor and can have long-term repercussions.

The Bottom Line: The Importance of Understanding Whether a Guarantor is Necessary For Personal Loans

Understanding whether a guarantor is necessary for personal loans is important for anyone considering taking out a loan. While having a guarantor can make it easier to get approved for a loan, it can also come at the cost of higher interest rates and/or stricter repayment terms. 

To that end, it’s important to understand the risks involved and ensure the guarantor meets the lender’s criteria before signing up.

Are you looking for quick and easy personal loans in Canada? If so, you’ve come to the right place! At 365 Loans Canada, we specialize in providing Canadians with the loan services they need to get the money they need, fast. Contact us today to learn more about our loan services and how we can help you!

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