Will being a guarantor to a bad debt affect my home loan application?

By: Zeng Han Jun, CPCG, Singapore

To be a guarantor of a loan means that if the person you are guaranteeing, does not pay his debts promptly, you become responsible. Very often, people need a guarantor at some point of their lives. This is especially so if your friend or relative is applying for an unsecured line of credit.

The question now is, can a bad debt that you are guaranteeing, affect your application for your own housing loan. The answer is a resounding “YES”. You must realize that by helping out your relative and friend as a guarantor, it may have nasty consequences on your own credit rating, if he defaults on the loan.

Lets say your friend or relative is late in their monthly payment, the same rating is stated in your credit report. It is therefore very important to know who are you guaranteeing for, and are you willing to help him out financially for a few months if he cannot make the payments. That is a very important question to ponder about when someone asks you to be the guarantor.

It does not matter when you tell the bank that it is not your debt. It may not be, but it is still your obligation to see that the payments are on time. While you co sign, it is important to know that at this point of time, your credit rating is at the mercy of the person that you have decided to help.

When he defaults, it can really screw up that housing loan application and prevents you from buying that dream house. Remember, take great care in deciding who to guarantee for, as it has severe consequences for your own credit.

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