What is the Role of Guarantor in Personal Loan?
Are you willing to take someone else’s responsibility? Have you agreed to become a guarantor of somebody’s loan? This is what a guarantor does. You have to stand by on behalf of someone else for their benefit.
Mostly friends, relatives, and colleagues sign as guarantors for personal loans for the aspirant in order to help them in availing a fund on time. Many people do not realize the responsibility that goes along with such an act.
Thus, the guarantor in a personal loan then becomes responsible for the reimbursement of the loan like the first applicant borrower. There can be a serious problem for the guarantor in case the first applicant fails to repay the amount.
In case the first borrower does not pay back the debt then it becomes the role of the guarantor to make payment of the pending amount failing which the lender has all the right to start the legal proceeding against him.
This is because a personal loan is unsecured, and the guarantor in a personal loan has become the first option for the lender to recover the pending amount. The monthly salary of the guarantor is attached by the court for the effective recovery of the loan.
Attachment and Sale of assets:
The property of the guarantor can be attached or sold by the bank after a suitable verdict from a civil court to recover the pending amount. Thus, one needs to be careful about one’s repayment capacity for which he is signing as a guarantor.
As a rule, the guarantor’s monthly salary should permit him to take up repayment of the loan for which he has given the guarantee. This is the main reason the lenders insist that the guarantor must have good financial status and credit rating than the first borrower
Negative impact on credit score:
When one stands by as a guarantor for someone and the loan is defaulted upon at a later stage, the credit rating of the guarantor is also affected. CIBIL (Credit Information Companies) keeps an eye on the guarantor along with the borrower in case of loan defaults.
Reduce Credit Eligibility:
Nowadays all the leading banks and private lenders are referring to the credit rating from CIBIL for evaluating the credit eligibility of the applicant.
Thus, one who has signed as a guarantor will result in reduced eligibility for taking a loan as the amount that he has pledged is reflected as a pending fund against his name by CIBIL in calculating eligibility.
Thus, the decision, for pledging in as a guarantor in personal finance, needs to be taken carefully after checking all the aspects involved and considering the repaying intentions of the borrowers carefully.
Special Note: An individual must examine the whole EMI amount payable to the lender with the Personal loan EMI calculator.