Acting as a Loan Guarantor? It’s not only acting!
Guaranteeing a loan is vastly different from just merely signing a document as a witness. When you agree to become a guarantor for a loan, you are making a financial commitment, one that should be done only considering all the aspects. Be Practical when you are becoming a guarantor for a loan.
This is important because if the borrower defaults on the payment, the responsibility of the loan has to be borne by the guarantor. In such a case, there is little a guarantor can do except talk to the lender and try to make a settlement for future payments of the remaining debt.
Banks insist on guarantors for the loans in which there is no appropriate collateral, such as education and business loans. For other loans too, banks can insist on one, especially if the borrower does not have a good credit history.
Other instances where a guarantor is needed are if the borrower has a transferable job or one which involves frequent travel abroad. It’s also necessary when the loan is applied for in a city other than the one that is the applicant’s permanent address.
Some banks may not ask for a guarantor, but insist on a co-borrower, whose role and liability are the same as that of a borrower. So, he also has to pay the equated monthly installments (EMIs) regularly.
Being a Guarantor Lead To
- Repaying the loan in case the borrower cannot or chooses not to do so.
- Having one’s assets sold or attached by a bank to clear the debt
- Inviting a poor credit rating (refer CIBIL) in case of a default while repaying the loan and a slim chance of getting a loan in the future
- Having one’s borrowing capacity calculated by the bank after including the debt owed in case one wants to take a loan