All You Need to Know About Personal Loans Guarantors

 Amrita Agarwal
  Mar 01, 2018

Personal loans are unsecured or collateral free loans. Any kind of security is not demanded by the lender till the lender feels that the borrower is capable of repaying the money borrowed by him. But if the same doesn't happen, a lender may ask to bring a guarantor or two so that the loan can be sanctioned. Adding a guarantor to the personal loan makes the lender feel secure about the repayment of the loan because if the primary borrower defaults, then the guarantor of the loan will take the responsibility of repaying the same.

When You Are a Guarantor to Someone's Personal Loan

One may assume that being a guarantor is just about a signature, but the depth of the matter is very high indeed. The personal loan guarantor will not have to face any kind of hassles if the primary borrower repays the loan on time. But in unfortunate cases like skipping a number of EMIs by the primary borrower, the lender will reach the guarantor to repay the outstanding amount. In such cases, it will become the sole responsibility of the guarantor to do the payment. If he fails to do so, the bank has full authorities to take legal action against the loan guarantor. The ultimate situation may reach up to attaching the monthly income of the guarantor or selling the assets of the guarantor by the court to recover the borrowed money.

The other side of the coin is the decreased borrowing capacity of the guarantor. When a person becomes guarantor his credit eligibility will be reduced. All credit related activities of any individual are recorded by the credit information companies. Being a loan guarantor will also be reflected in the credit report. Hence lenders will hesitate to lend you a high amount of loan as you may need to take the burden of the other loan too for which you are a guarantor.

When a person becomes a guarantor, along with his credit eligibility his credit score also may go down. It will be very unfortunate if because of someone else's mistakes your hard earned credit score has gone down. If the primary borrower defaults, along with the primary borrower the guarantor's credit score will also go down. In the present day, a good credit score is not cheaper than a costly gem. It takes almost a year of dedicated work to bring it up. Not only that one has to be constant with good financial habits to keep it in the same position. So, such hard-earned credit score can be at risk while you are a guarantor to personal loan borrower.

Eligibility, Rights and Responsibilities Of A Loan Guarantor

# Any lender accepts any individual as a guarantor only if he/she has a good credit score and never applied for bankruptcy.

# The guarantor must be 18 years or more at the time of sanctioning the loan. Any individual before the age of 18 years, neither can apply for a loan nor can be a guarantor.

# The guarantor must have a steady source of income.

# The guarantor must be aware of the rights and responsibilities in legal terms before signing the agreement. This is the duty of the lender to make the guarantor informed about the same.

# The acceptance of becoming a loan guarantor should be done by the self approval of the guarantor and not by forcing, coercing, influencing or tricking.

# The guarantor has the full authority to take legal opinion before signing the agreement.

# It is the guarantor’s right to obtain a copy of loan agreement once the loan is approved. He must get the details of the total borrowed amount, the rate of interest, EMI amount, tenure etc. The lender must give the regular update of the credit to the primary borrower as well as to the guarantor on the repayment track.

The Bottom Line

We can never deny the fact that by becoming a guarantor you are helping someone who needs your assurance to get his loan sanctioned. An online personal loan apply can be done instantly but sometimes sanctioning the same needs a guarantor. Generally, banks demand a guarantor whose income is more than the primary borrower and he should have a good credit rating. Lender's check this before personal loan online approval so that if there is an event like defaulting, the guarantor can pay the same. The addition of a guarantor minimizes the risk of turning a loan to an NPA(Non-Performing Asset).

Thus the decision of being a guarantor should be taken very cautiously. One must be aware of the consequences that may come because of agreeing to be a guarantor. One should be assured of the repayment capacity and also the intention (which is more important than having fund) of the primary borrower.

All You Need to Know About Personal Loans Guarantors

Amrita Agarwal

I am self employed. I am interested in writing,marketing and business. I have a good habbit of writing about financial things and I want to inform the people in detail about finance requirements.

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