A guarantor is someone who agrees to pay a borrower’s debt if the borrower is unable to do so. Every good legal money lender in Singapore gives its clients the option of having a guarantor if they do not qualify for a loan themselves.

If someone has asked you to act as guarantor, it is a testament to your financial standing as well as the trust that the borrower places in you. However, financial matters tend to come between friends and family. You should take such a step only after adequate consideration.

Here is what you should know before you and after you sign the contract, and after the loan has been settled.

Before signing – the precautions

A guarantor does not receive any money directly from the legal money lender or the borrower. However, they are liable for the entire loan amount, all interest, and any fees or penalties associated with the loan. If you place yourself in this lopsided equation, be aware of these four things:

1. Loan terms

Every licensed money lender in Singapore offers a range of different loans and each comes with unique terms and conditions. For example, a business loan may be linked to commercial profit. If you are co-signing such a loan, go over the business plan yourself to assess its likelihood of success. Only then should you consider becoming a guarantor.

2. Privacy issues

The document requirements for a guarantor are the same as those for a borrower. You will have to share your personal and financial information, including your credit history and current financial circumstances, with the money lender in Singapore. The borrower will also see this data during the loan assessment process.

3. Credit repercussions

When you co-sign as a guarantor, your credit score is affected in the same way as if you were the sole borrower. It reduces your ability to take on additional debt from a legal money lender until the loan has been repaid in full. This affects your chances of getting a home loan, car loan, credit card, or even an overdraft.

4. Consequences of default

If the borrower fails to make payments on time, you are responsible for all cumulative late fees, admin charges, and additional interest. Even the best money lender in Singapore will pursue you for the full amount due. This could add up to twice the original loan amount (a limit placed by Singapore law).

As we have seen, there are several serious concerns a guarantor must be familiar with. Do not allow anyone to pressure you into becoming a guarantor for them. It is your financial health on the line and the decision is solely yours to make.

Are there any advantages of being a guarantor?

Yes, but the advantages are fairly limited: There may be a positive impact on your credit score. This score takes into account how often you take on debt as well as the diversity of that debt. Acting as a guarantor widens your credit base and, especially if the loan is settled on time, tells banks and licensed money lenders in Singapore that you are a trustworthy borrower.

With a better credit score in tow, banks as well as the best money lenders in Singapore may offer larger loans, lower interest rates, and longer repayment periods. Apart from the possibility of saving money on your loans, you could even qualify for more lenient terms as well.

Throughout the loan repayment period

As a guarantor, you do not receive any money from a money lender in Singapore, but you must still keep abreast with the repayment progress. Always maintain a close relationship and communicate regularly with the borrower. Ask them to come to you before an instalment is due if they are struggling to gather the funds.

With this approach, you can foresee and circumvent missed or late payments, and the additional costs associated with defaulting. You will also prevent any damage to your credit score.

After the loan has been repaid

No one particularly enjoys being a loan guarantor because it is an additional burden that offers limited advantages. The person for whom you co-signed the loan may make every payment on time and repay the loan themselves, but it may still be best to avoid becoming a guarantor for them repeatedly.

Instead, help them gradually build their credit. If they need a loan again but you would rather not stand as guarantor, bring them in to speak to our LoanHere loan experts. We work with the best money lenders in Singapore to provide a wide range of loans that cater to your needs (e.g. personal loan, renovation loan, study loan, vacation loan, etc).

There has been numerous media coverage on loan scams of late as the Covid-19 pandemic has enticed more and more cunning scammers to ‘upgrade’ the tricks under their sleeves to trap desperate individuals into getting a loan scam.

We are certain that most of you have heard stories of people being scammed and scratched your heads as you wondered how people could be deceived so easily.

The reality is that these scammers are persuasive as they are charismatic: a few words, dashing smiles, some strategic ego-brushing, and you’re under their spell.

Thankfully, there are ways for us to distinguish between legitimate loans and loan scams. So, before you decide to take out a personal loan from a licensed money lender, bank, or financial institution in Singapore, look out for these tell-tale signs:

1. Upfront payment

If you are required to pay an upfront fee or deposit to take your personal loan application forward, it is likely a scammer trying to make off with your money.

Just ask any bank or licensed money lender and they will confirm that a legitimate lender will never ask you to make any payments before receiving the loan. The act is deemed illegal in Singapore.

Therefore, if you find yourself in the presence of a so-called loan agent or consultant explaining that the upfront payment is for mandatory processing fees, advance repayments, or collateral, you should say your goodbyes and walk away immediately.

2. Missing physical address

Scammers will do everything in their power to make it impossible for you to get hold of them in the future. How, exactly? By failing to provide a real, physical address, of course.

This is done intentionally. Without a physical address, it will be incredibly difficult for you to press charges, let alone for the authorities to pursue them.

Before you get swept away by the perks of applying for a personal loan, put the brakes on until you can confirm the existence of a physical address.

3. No state registration or licenses

One of the biggest tell-tale signs that you are getting scammed is that the business doesn’t come with any legal license or registration details. In Singapore, it is mandatory by law for every licensed money lender to be registered with the legal authorities.

If a sketchy individual approaches you with a personal loan plan that wows you, remember to ask for their license and registration number to prove their legitimacy. In Singapore, every legitimate and authorised money lending institution is registered with the Registry of Moneylenders. Remember, you are always free to cross-check the information you’ve gathered.

4. No credit check

Did you know that credit checks are important for banks, licensed money lenders, and financial institutions as it helps them determine how financially trustworthy you are?

On the contrary, scammers wouldn’t even spend five seconds doing a credit check as they intend to scam you out of your money.

While credit checks can be a hassle, it appears that the hassle is necessary to prevent us from getting scammed when we apply for personal loans.

If the lender is making guarantees that are too good to be true before even running your financial history, that is a clear indicator to keep your guard up and be cautious.

5. Incomplete loan offer

Most scammers will prepare a mock offer in black and white that passes the bare minimum for a loan offer for the sake of deceiving their victims’ eyes.

If you look closely, you’ll find many flaws in the document, such as blanks on where the agreed interest rates and processing fee should be. This is why it is incredibly important for us to always read the fine print before signing any personal loan documents — it’s just good sense and it makes things easier for us to pick up red flags that would demand us to walk away and never look back.

Bottom line

As enticing as it may be, you need to stay alert as there is no such thing as a flawless (or free) personal loan.

• Licensed money lenders will not apply pressure to push you to be agreeable
• Scammers have a habit of offering deals that are too good to be true, such as offering 0% interest rates or 100% approval

Also, take note that a licensed money lender, bank, or financial institution will never ask for your debit or credit card details.

Speaking of card details, it is always best to refrain from sharing your identification number, driver’s license, or any other personal information until you are 100% certain you are dealing with a legitimate loan agent or consultant.

Unfortunately, we live in a time where a handful of irresponsible individuals are taking advantage of the financial woes experienced by many to feed their pockets. While personal loans undoubtedly have many benefits that can help us improve our credit score, manage debts, and provide us with financial assistance at short notice, let us be more vigilant in ensuring we are dealing with the right people when taking out a personal loan in Singapore.

Reach out to LoanHere to get free loan quotes from the top licensed money lenders in Singapore now!