As part of its financial literacy drive, the Bank of Ghana is urging the general public to be mindful of whom they guarantee loans for.
The Central Bank maintains that the guarantor will be compelled to repay the loan with accrued interest if the borrower defaults in honoring the loans obligation.
In a notice released by the bank, the regulator impressed upon the general public to assess the repayment capabilities of the borrower before guaranteeing any credit or loan facility.
Below are some precautionary tips issued by the Central Bank:
1. A loan guarantor is an individual who gives an undertaking or promises to pay a borrower’s debt if the borrower defaults on a loan obligation i.e. if the borrower fails or is unable to repay the loan with accrued interest. Be careful who you guarantee a loan for.
2. As a guarantor, you have a legal and financial responsibility to repay the outstanding balance on the loan, if the borrower fails to do so.
3. Assess the repayment capabilities of the borrower before guaranteeing any credit facility or loan. Don’t forget that as a guarantor, you will be required to pay back any outstanding loan balance, if the borrower is unable to meet the loan obligation.
4. Do not rush to guarantee for borrowers and sign off on the documents. Obtain and study the loan agreement to ensure that you understand the terms and conditions, and you are comfortable, before committing yourself.
5. Do not only depend on a borrower’s word of mouth or merely the relationship you have with them to guarantee their loan. It is your duty to do due diligence. Remember, the commitment has legal implications.
6. Exercise caution! If in doubt, seek independent legal and financial advice prior to accepting to guarantee a loan.