Rules of becoming a personal loan guarantor
Category: Personal Loan
How to determine on being a personal loan guarantor? The question you should ask yourself is whether you will be able to repay the loan if the primary borrower defaults. Remember, when you agree to become a guarantor for a personal loan, you are making a financial commitment, one that should be done only after considering all the aspects. Being unsecured by nature where the banks do not get any collateral security the personal loans require another individual to become guarantor for the borrower. This is the method of the lending institutions to make sure that the money lent out by them is safe and secure. There are some norms for eligibility which have been imposed by the banks in this regard.
Guaranteeing a loan is vastly different from signing a document as a witness. Each bank has its own policies concerning choice of individuals who can become guarantors. In common, the banks would need the guarantor to be an earning individual with income more than the loan borrower as to recover the outstanding amount in the event of a default. In preference, the guarantor credit rating should be superior in comparison to borrower himself to ensure easy recover of money when default happens.
Being a guarantor encompass…
- To repay the loan if the borrower fails or chooses not to do so.
- Fetching a bad credit rating in case of a default while repaying the loan.
- Insubstantial chance of getting a loan in the future.
- Resulting in one’s assets sold or attached by a bank to pay off the debt.
- In case one wants to opt for a loan, the bank will calculate the borrowing capacity including the debt owed.
Now if any individual wants to be a guarantor, there are some obligatory legal conditions apart from the banks preference which are essential:
- The guarantor should have a sound credit history and should not have applied for bankruptcy ever before.
- The guarantor should be minimum 18 years of age at the time of sanctioning the loan.
- The guarantor should be told about his rights and responsibilities in legal terms before signing the agreement.
- The guarantor should have a sound mental capability and be able to undergo his responsibilities while signing the agreement of loan.
- The individual should not have been forced, coerced, influenced or tricked into signing as the guarantor for any loan.
- The guarantor has the right to inquire legal opinion before signing the agreement.
- The guarantor should have abundance influence over the loan borrower so as to make him do repayments in time.
- The Guarantor must be given a copy of the loan agreement after the personal loan approval.
- The guarantor should be informed of the borrower’s outstanding loans in every bank, his accumulated gratuity and provident fund where applicable and the details of the loan being applied for including details of amount, EMI, rate of interest and tenure as applicable.
You need to check the borrower’s financial capability to pay off the loan. If you are confident that the primary borrower will pay off his loan and not default, then you can opt to become a guarantor.