Should You Be a Guarantor For a Friend to Borrow Money?

I've got a pretty good credit rating because I know how to manage money (well, my wife does!).  I see people that are always struggling to have enough cash flow to even live their day to day lives.

Recently, a friend of mine (actually it was my friends parents!) invited me over to their house because they wanted "a favor".  

When I get there, they basically asked me to sign this official bank document that states that I vouch for their ability to repay the money.  Of course, my first question was "Am I liable for the loan if you don't repay?".

They tried to smooth it over by saying it wasn't that kind of thing, but the page was strategically folded.  I opened it up and lo and behold, they wanted me to sign a guarantor loan.

For those that don't know, a guarantor loan is basically me co-signing with them so that if they can't pay it, the guy with the good credit rating (me) has to.

Do you think I signed that paperwork?


Here are just a few reasons why co-signing with a friend or acting as a guarantor is a bad, bad idea:

- YOU are liable if they can't pay

- If your friend defaults on the loan, they might not be your friend any longer

- Once you've agreed, they might start asking for more

- Did I mention that YOU ARE LIABLE?

Instead of lending people money or being their guarantor, I like to help them strategize their finances so they can make their own money and afford things without my help.

It might take longer to achieve, but if they want to live the luxury life, travel the world and experience amazing things, then they have to sort their finances out.

What do you think?  Have you ever co-signed on a loan for a friend or family member?  How did it turn out?

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