By Peter Kamuri
It is on a Monday morning and you have just reported for work. Before you settle down, a colleague approaches you flashing some papers. Before you even have a keen look at them, he is on his knees, literally, passionately asking you to guarantee him in a loan he is about to apply for from his cooperative Sacco.
As you try to probe why he needs the money, he gets the better of you and fervently requests you to sign the form without inhibitions. Convinced that he is a colleague and after all you have known him for a long time, you oblige and cosign on the loan application form.
Such a story is familiar to most of us. We often cosign on loan applications forms for friends and colleagues, but we hardly ponder the implications of our actions. In case they default in repaying, we are committing to pay up on their behalf.
Two years ago, James Kinyanjui, a high school teacher made a terrible mistake that he will live to remember for a long time. He guaranteed a colleague a loan he was securing with a cooperative society, but after just making three months payments, he absconded.
Kinyanjui laments, “I remember very well how he approached me. He told me he wanted some money to enable him to pay for his children school fees. I did not see any reason why I should not have cosigned on his loan form. After all he was a friend and I had known him for several years.”
“However, after he got the money, it was not long before I got communication from the lender saying that he had defaulted. His shares were attached and I was made to pay the balance from my salary. He has since declined to refund the money,” laments Kinyanjui.
Erastus Aroka, a financial advisor warns, “Most of your friends will often come to you asking you to do them a favour and cosign on a loan they are applying for. However, before you commit yourself into signing, you need to look at the possible consequences of your actions.”
He observes, “Seemingly, many people are not aware of the responsibility of the person who guarantees a loan. You must be aware that when you cosign on a loan, you are making a commitment that in case the borrower fails to repay the loan, you will do it.”
He adds, “When you guarantee someone else’s loan, you are indirectly promising to pay up the loan if he defaults. You are legally liable to pay off the debt if they are unable to pay it off themselves.”
“It is not wrong to help someone get credit as it can help them get out of a problem. However, it is important to know that in case the borrower absconds in making payments, the creditor can come after you to recover his money,” advises Aroka.