Most Saccos will require you to have a guarantor to access their credit products. So, when a loved one you are in the same Sacco with approaches you to guarantee their loan, do you know what that means. Probably yes. But, does that knowledge only include the meaning of the word guarantor?
Do you know how you can protect yourself when guaranteeing someone’s loan? Or how can you get guarantors when it is time to take a loan?
Today’s article explores all these questions.
Who is a Guarantor?
A guarantor is an individual who acts as a security when you are borrowing money. That means the person/s you nominate as your guarantor/s are liable for any money you borrow and fail to repay.
So, if you act as someone’s guarantor and fail to repay the loan, you will have to pay back that loan to the extent you guaranteed. For instance, let’s say a friend borrowed Kes. 500,000, and you guaranteed Kes. 100,000 of their loan. Then, the said friend only paid Kes. 150,000 of the loan and defaulted. It means you might be forced to pay Kes. 100,000 of their balance since that is the amount you guaranteed.
Related post: The Good and the Bad of Joining a SACCO
How to Get Guarantors
One of the top questions I get from people who want to join a Sacco is how they can get a guarantor. Getting a guarantor is not easy. No one wants to be chased after for debts of individuals they do not know. And, it is even harder to get people you are not familiar with to be your guarantor.
My answer, especially for anyone joining a Sacco for the first time, is to ensure you join one where you know people. Or try to join one with a few trusted friends and family. That way, you can always act as each other’s guarantors.
The Sacco I am currently in, a colleague recruited us. He always gave us advice on how to save after we got the jobs. This is how we build a circle of at least five colleagues (now ex-colleagues). But, when one of us is in need, we contact each other and try to guarantee as much as we can or want to guarantee.
If you have already joined a Sacco and have no friends or family there, it is time to start knowing people. This, of course, is a long short and will take time for the new people in your circle to trust you.
What to do if you have no Guarantors
Is it possible to borrow from a Sacco without a guarantor? Yes. But, it will also depend on the rules your Sacco has in place. Before signing up with any Sacco, ensure that you go through their loan products and requirements.
I have noticed that most Saccos allow you to borrow to the extent of your savings. So, instead of getting three or four times your savings, you can borrow equal to or less than your savings.
Let’s say you have a member deposit of Kes. 100,000, the Sacco can allow you to borrow Kes.100,000 or less. That way, your savings become your security and are used to repay any defaulted amount. If you have guarantors, you could borrow three times your savings, Kes. 300,000 and have them act as security for the remaining Kes.200,000.
Alternatively, you could use any assets you have as collateral. For example, most Saccos will allow you to use cars, title deeds, shares, and government bonds as securities for any money that you borrow. So, if you do not have guarantors but have assets, you can use them as collateral.
How to Protect Yourself as a Guarantor
Have you heard of people who are paying thousands of shillings for loans they did not borrow? Yes, it happens. I know a few people who acted as guarantors for their friends. Unfortunately, these friends defaulted and started the cat and mouse games with them and the Sacco. Now, they are the ones paying back the loans.
If you act as someone’s guarantor, you must take the necessary steps to protect yourself and your hard-earned money. For starters, try to understand why the person is borrowing money. Some reasons to borrow can be a sign of trouble, and you should run.
Second, assess their credibility. Are they in a position to repay the loan? What is their credit score? Are they good borrowers, or does the Sacco have to chase after them to get its money back?
Third, only guarantee an amount you know you can repay if they default. While someone could be your friend, you do not have to guarantee 50% of their loan with all your savings. What if they defaulted, avoided you, and blocked any contact you have with them? You will be stuck with someone’s loan, and all your savings will go down the drain.
Saccos thrive because of borrowing. It is how they raise money, and you get your dividends at the end of each financial year—as such, borrowing and guaranteeing other people’s loans is paramount in a Sacco. But, you need to understand what it means to be a guarantor to ensure that you protect yourself. If you are yet to join any Sacco, ensure that you read the policy on loans and guarantors of the one you are interested in.