Can I guarantee someone else’s loan?
Generally speaking, it will not be quickly recommended to take out a loan from another guarantor. However, in certain cases it can alleviate a lot of financial suffering. The guarantee was originally started as part of Roman law. Ancient Rome would certainly have been less prosperous if there were no personal guarantees in the granting of loans. Being a guarantor was a matter of honor at the time and it was difficult to refuse a request for a guarantee.
Even to date, the guarantee concept is still known and in use, although in certain cases it can be associated with problems. These problems can concern both the origin and the effect. Guarantee is often a mix of a desperate request from a neighbor and a certain form of emotional blackmail. If you are asked to act as a guarantor for a loan from a family member or close friend, you will often have a double feeling, namely:
- if you refuse to act as guarantor for the loan of a family member or close friend, this can be detrimental to the understanding,
- if you do stand surety for the loan of a family member or close friend then you will have to sacrifice your own financial freedom and creditworthiness.
Being a guarantor can have very far-reaching consequences and, in the most unfavorable case, can even lead to a coding after your name at the CKP. Such coding can stand in the way of fulfilling your own credit needs at a later date. Moreover, as a result, a financial institution may apply a risk premium to the interest.
Guarantee can be considered as giving a humane form of assurance. Unlike other collateral, such as a mortgage, a deposit will provide personal guarantees. The personal guarantee has introduced a human aspect within the world of lending and credit. After all, another person guarantees your payment obligations.
At the moment that the payment obligations cannot be met, the frustration of the guarantor will, as a rule, transcend the sorrow of material damage. Together with the money that is lost, the good relationship will also disappear when the deposit is demanded for delivery. For example, a failed loan has a devastating effect on family ties and friendships. The guarantor will blame himself for having been too credulous, but will also imitate the debtor in question for not having behaved financially.
Mobilization of capital by guarantee
The moment that you stand surety for someone else’s loan, a kind of triangular relationship arises. The ratio is as follows: a lender does not have sufficient confidence in an applicant for a loan and does not have sufficient assurance regarding the repayment of a loan granted together with the interest owed on it.
The person who wants to act as guarantor will restore the creditor’s lack of confidence in the original borrower by ensuring creditworthiness. The result is that the flow of money can get going again: the borrower can finance a certain loan target. In other words; by guaranteeing, you mobilize capital, as it were, and thus keep the economy going.
Plus points of personal guarantee
Looking at a personal guarantee in a positive way is fine, but you must be able to bear the financial burden involved. Having sufficient capacity will of course help. Being a guarantor becomes considerably easier the moment you can afford it financially. From the perspective of the person who wants to act as guarantor, this does not have to be unwise in advance.
This guarantor has a certain head start in knowledge with regard to the debtor. After all, a guarantor is aware of certain matters that are reassuring and confidence-inspiring with regard to the loan taken out and the debtor. The lender, on the other hand, does not have this specific knowledge.