Many Filipinos face a common issue when applying for loans: lenders require a guarantor before approving the application.
What is a loan guarantor?
According to the Civil Code of the Philippines (Article 2047), a guarantor is a person who agrees to fulfill a loan obligation if the main borrower fails to pay.
This commitment is usually documented in a written contract so it can be enforced in court. In many cases, the guarantor may end up responsible for the remaining balance of the debt, plus interest and certain charges, if the borrower defaults.
Lenders typically require a guarantor when:
- The applicant has a limited or poor credit history.
- The applicant’s income is considered insufficient.
- The applicant works informally or is self-employed without having steady income.
Guarantor’s responsibilities and risks
Being a guarantor carries real financial and legal weight. If the borrower stops paying, the guarantor may have to cover missed payments, interest, late fees, and even some legal costs, depending on the contract. This, in turn, can damage the guarantor’s credit score, thereby directly affecting their ability to obtain loans in the future.
After paying off the debt, the guarantor can legally demand repayment from the debtor, but collecting the money is often difficult and may involve litigation.
Modern alternatives
Fortunately, many modern lenders have moved away from requiring guarantors. Platforms like Salmon Philippines allow you to borrow up to ₱60,000 to buy gadgets, clothes, and other products. To get approval, you’ll be asked to provide your ID, proof of steady income, and an active Philippine mobile number.
If you still decide to become a guarantor, here’s what you should do:
- Scrutinize the loan contract before signing it. Stay aware of the total amount, the associated rates, and the consequences if the borrower defaults.
- Take your time to learn the legal side of the matter. The benefit of excussion normally protects guarantors by requiring lenders to go after the borrower’s assets first, but this protection can be waived or limited in the contract. Consult a lawyer and your bank’s representative if anything is unclear.
- Weigh potential psychological consequences. Guaranteeing a loan for someone can strain friendships or family ties if things go wrong — be prepared for it and assess the risks.
Understanding the legal and financial implications of being a loan guarantor helps you make informed decisions. At the same time, do not exclude modern alternatives that allow borrowers to access the amount they need without putting your own finances at risk.
