Principle 13. Signing surety for friends.

This is even more dangerous than what we discussed in principle 11 – Lending money to friends. On the face of it, you might think its ok to stand as a personal guarantor.

WHO IS A SURETY?

When you stand surety for someone, you are promising the lender that in case of a default from the borrower, you will take up the responsibility to pay off his debts. Sureties are also known by other names such as ‘co-applicants’ ‘co-signer’ ‘co-borrower’ ‘guarantor’ etc. What ever be the name, the effect is the same.

Whether to sign a surety or not is not a simple decision to take. Because once you sign it –

  • You completely become responsible for your friend’s debt.
  • Your credit records are immediately updated with this information.
  • In case your friend defaults, you will also be liable for other expenses like legal expenses, recovery expenses, court fees etc..
  • Your name will be added to the list of liability holders for credit score purposes. Hence you credit score will be low and when you need a loan for your purpose, it might be difficult to get one since the bank will count the first loan as your liability.

WHY DO WE END UP SIGNING CO-GUARANTOR AGREEMENT?

  • The act of signing a surety is taken very casually by youngsters without thinking about the consequences. They think that it’s ‘just a signature’ help for a friend.
  • It could be your dearest friend who’d be asking for this help and it would be difficult for you to say no.
  • You might have previously made him guarantor for your loan. Hence, now it’s time to reciprocate.
  • May be your friends are taking advantage of your friendly character.

The only two questions that needs to be answered before signing a surety are -

  • Do you know the borrower very well? Can he /she be trusted? do you know their financial background – if the answer is yes and if they are from financially sound background, go to the second question or else stop here.
  • Can you pay off the loan In case the borrower defaults in his payments? If the answer is ‘yes’ go ahead. Or else stay away.

CONCLUSION

That’s our 12th principle – Try your best to avoid signing sureties.

  • If it’s your family members (your brother or sister) consider taking the risk.
  • If it’s for your friends and cousins – think twice.
  • If it’s for business partners – consult a financial expert like a chartered accountant. And ,
  • If it’s for your boyfriend or girlfriend or girlfriend’s best friend – well, you are inviting trouble!!

You may like these posts:

  1. Principle 12. Lending money to friends and relatives.
  2. Principle 10. Have a Monthly budget
  3. Principle 11. Utilize credit cards wisely.

8 Responses to “Principle 13. Signing surety for friends.”

ako webmail

October 19, 2011 at 5:53 am

Many thanks for giving that excellent subject material on your internet site. I noticed it on the internet. I may check back again when you post additional aricles.

ako webmail

October 23, 2011 at 8:17 am

This is great stuff, its nice to be in the know.

Anonymous

January 9, 2012 at 12:34 pm

First-rate site I tend to be of the same opinion with most of what you wrote. I would like to see more posts on this. I will bookmark and come back.

Anonymous

January 25, 2012 at 7:49 pm

You have actually created some brilliant points here. In my opinion, you’ve presented the topic in a concise manner, that is genuinely useful. If you don’t mind I’m going to add this post and your web page to my favorites so I can share it with my friends.i’ll be back to read your future posts as well.

Anonymous

February 13, 2012 at 7:57 pm

hey buddy, this is a very interesting article

Anon

February 12, 2013 at 9:23 pm

I think I had invited trouble couple of yrs back.. :(
Should have read your article b4..

Lazarus

February 25, 2013 at 3:37 pm

what about the procedure that needs to be followed regarding a surety?
can anyone be a surety

Roshni

December 29, 2013 at 2:17 pm

Good read. Last line of the article – funny but very true !!

Leave a Comment