When you are a loan guarantor, you could be helping a family member or friend but are you aware that a default by the borrower could put you in serious trouble, and you might have to repay the balance.
Most loan applications, including car loans, home loans, or other mortgage loans, require an approved guarantor for any loan request. This helps reduce their risk in the event of the loan not being paid. In the event of non-payment or defaults, they may ask their guarantors to pay the balance.
Being a Guarantor
But, by signing on as a guarantor of the lån med kautionist, you guarantee to the loaner which you’ll be able to repay the financial loan if the borrower is unable to repay the loan.
When the borrower is standard with the loan because of death or any other reason, the Guarantor is liable to reimburse the loan amount.
Additionally, if the primary borrower is in default with the EMIs, this could be a factor in the CIBIL score of the garant.
What can you do?
In becoming a loan guarantor, you’re trying to assist your family member or friend; however, let’s not make a lot of feelings here since it is a financial issue. Therefore, you must be aware and be a suitable guarantor.
Before making any decision, it’s essential to be aware of the financial capacity of the principal borrower. Request the score of their credit. If you’re happy with the score, you may go on to become the loan’s Guarantor.
Please do not become a guarantor unless it is for your spouse, parent, or child. Averting such a substantial financial burden even at the expense of appearing rude to family members or your friends is sensible.
If you’re already a Guarantor
If you’re already a guarantor of a loan with a close friend or relative, and it’s working out well, there’s no problem. If you’re not sure about your borrower’s repayment capacity, you may ask the borrower to disengage you from the obligation of the person who is the Guarantor for the loan. This can only be done if the borrower who is the primary one finds another person, the Guarantor. There is no way you can contact an institution directly to remove your guarantee.
This must be initiated by the borrower who is the request being made.
What do you need to consider before signing a guarantor contract?
Make sure you think before you leap into
A borrower typically knocks on the door of someone in the family or a close acquaintance to sign up as a loan Guarantor. If you’re approached by someone first, the most important thing is determining his ability to repay.
It is vital to verify the borrower with a professional or bank and sign the loan agreement only if you believe that the borrower has the desire and ability to pay back the loan.
Know the dangers that are involved
It is essential to be aware that you are liable to pay back the loan when the borrower falls behind in the repayment as a loan guarantor. But, there are other risks the Guarantor may be subject to, including CIBIL and the financial stability of the person you are.