What Role Does the Guarantor Play in A Personal Loan?
When someone’s taking out a Personal Loan, the financier usually requires a guarantor. The guarantor is the individual who’ll be taking on the task of paying off the loan if the original debtor fails to do so. The reason a Personal Loan requires a guarantor is because it doesn’t need any kind of collateral; without a collateral in hand, the lender has no way of recovering the borrowed amount if the debtor defaults on the loan.
Anyone who fulfils the bank’s requirements, including family members, can become a guarantor for the loan you’re planning to take. For example the bank will accept your brother as a guarantor for Personal Loan, provided he fulfils the required criteria. This article examines the role of a guarantor in Personal Loans.
What You Need to Know Before Inking the Deal
If you’re thinking of becoming a guarantor for someone who’s taking a loan, there are a couple of things that you need to be fully aware of before you take on the task:
- In case the borrower is unable to repay the loan, then you will be legally obliged to make the payments in his or her stead.
- If the borrower defaults on the loan, then your credit rating will take a hit, making it hard for you to take another loan till it improves.
- It may be difficult to take a loan for yourself after becoming a guarantor on another loan. This is because lenders usually take such developments into consideration while assessing loan applications.
- Ensure that you know the Personal Loan interest rates, the EMI amount, and the loan tenure before agreeing to be a guarantor as all of these factors may begin to directly affect you in the future.
- You should also be fully aware of the debtor’s financial condition and trustworthiness before you seal the deal.
Who Can Become a Guarantor in a Personal Loan
The person who will be taking on the role of guarantor needs to fulfil certain criteria. Let’s examine these requirements:
- The guarantor’s level of income needs to be higher than that of the borrower’s.
- It’s also important for the guarantor to have a good credit score, which indicates that you have a history of making payments on time.
- You should also be fully aware of your responsibilities and rights before you sign.
Can You Opt out?
If you want to terminate your arrangement after you’ve signed the papers, then you will first need to go through the documents and see what the terms and conditions of revocation are. Then, you will have to notify both the lender and the borrower in writing. Once you do this, the lender will gauge the financial status of the debtor in order to make a decision.
Becoming a guarantor for a loan is not something to be taken lightly. The most important thing to do before you sign the agreement is to make sure that the borrower is trustworthy.
If you’re looking for some quick financial aid, then you can apply online for a Personal Loan with Bajaj Finserv. This company offers many benefits along with the loans it gives out, easing the burden on both the borrowers and the guarantors. You can also choose to apply for a home loan online at some of the lowest interest rates in the country.