Sometimes while applying for a loan at banks, the applicant might be asked get a co-applicant who guarantees to pay the loan amount in case the applicant defaults. The need for a guarantor can come up for several reasons including if the applicant’s income does not meet the requirement set by the bank or if the applicant’s credit history is too recent or indicates a high level of risk.
Who exactly is a loan guarantor?
A guarantor acts as a co-signor of sorts wherein he/she pledges his/her own assets or services if a situation arises where the applicant might default in his loan obligations.
A guarantor pledges to repay the loan on behalf of the applicant.
The guarantor has to furnish his/her details of income as well as information about assets and liabilities.
Things to Remember
Keep in mind that the guarantor shares the responsibility to repay your loan and this information will reflect in his/her credit report. So in case your guarantor approaches a bank to apply for a loan, his/her eligibility to get a loan will reduce because of him/her being a guarantor already to your loan. Therefore ensure you are prompt with your EMI payments every month.
It is not easy to withdraw from being a guarantor. It is possible only if you, the applicant and the bank agree to the guarantor’s application to withdraw. In such a case, an alternate guarantor has to be sought to take his/her place. Avoid this scenario by being honest with your loan repayment responsibilities.
Make sure the loan guarantor has read and understood all the terms and conditions. Check if the amount the guarantor agreed to is mentioned correctly in the document. Be careful with the guarantor’s details regarding identity or address because such sensitive information can be misused if lost.
Ensure that you will send the repayments report for the EMIs being made to the loan guarantor. Keeping the guarantor updated about your loan helps sustain his trust.
Its best to approach somebody for short-term loans of reasonable amounts. The loan guarantor will find this easier to manage while protecting his/her own credit rating.