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A guarantor’s dilemma

October 7, 2008

Your best friend or relative comes up to you and asks you to be their guarantor for an auto or housing loan. Assuming you are rational, what conditions would you put before you consider his request? Or would it be a flat no?

If its a no, then who guaranteed your car or housing loan and how did you get them to say yes?

I’ve always thought that the guarantor concept is patently unfair, even unethical. To guarantee the financial fidelity of someone you have absolutely no control over is just plain lunacy. Unfortunately that’s how the system works. Its the number one reason why I buy everything in cash. Putting other people’s ass on the line just so I can satisfy my whims is not exactly my idea of compassion, for me and for whomever the ass is attached to.

But sometimes, to flatly say no is not a solution either. People need a home to live in. Not everyone has $500k in cash or any collateral worth that much. People don’t believe in renting in this part of the world. Conclusion: you’re damned if you do, damned if you don’t.

So what do you do when someone calls in the favor, especially if they’ve done you some big favors in the past?

4 Comments leave one →
  1. October 7, 2008 10:44 am

    That’s a difficult decision to make, especially being Asian where we are very obliging. What more with a big favour done for us, it’s going to be hard to say no. I got a feeling when caught in this situation, most people will reluctantly sign their life away…

    Yeah, I’ve heard of horror stories of young upstarts whose futures are doomed after the loans they guarantored bombed. Its sad because many of them were only doing what they were brought up to do – to be supportive of relatives in need.

  2. helen permalink
    October 7, 2008 1:34 pm

    Before you become somebody’s guarantor, you have to ask yourself if you can afford to pay the money if the borrower defaulted in their payment. If the answer is no, then don’t do it.

    It’s not selfish to say no.

    In all fairness, the banks are not stupid. If somebody is wholly financially sound, the bank would not be asking for a guarantor in the first place.

    Thanks, that’s good advice. Yes banks won’t give out unsecured loans. Maybe that’s why I am not a banker. Got no heart to destroy other people’s lives if they default. My opinion – if debt really can’t be avoided, its better to pledge a collateral item rather than a human guarantor.

  3. October 7, 2008 5:15 pm

    I wouldn’t be a guarantor no matter what unless it’s immediate an immediate family member.

    At the worst case scenario, I’d rather lend them a X amount of money (e.g. 10% of the loan) to the person asking, rather than be a guarantor. Of course, this are for those friends in the *exceptional* category.

    That’s understandable, especially in certain economic times. Helping out with a personal loan does sound a lot better than being held hostage for years as a guarantor.

  4. October 8, 2008 4:29 pm

    when i was studyig in uni and i loan rm10k from a private institution.. i asked both my cousins who were already workign to be my guarantor and i guess they agreed coz the amount is small. i didnt pay regularly after i graduated and they got a warning letter! they passed it to me and since then, i nvr skipped a single payment! fully paid now..
    but i doubt it is easy to get guarantor if it is a large amount of loan and i dont know what to say if someone ask me. i am really bad in saying no to people.. 😦

    Luckily things worked out well for you. Its funny how we feel afraid to be somebody’s guarantor but when people refuse to guarantor us, we feel upset. Sometimes we forget these things work both ways.

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