A loan guarantor is someone who agrees to take responsiblity for someone else’s loan payment if the latter is unable to pay their debt on time.
Being a loan guarantor is not just a legal formality for namesake. It's basically your written nod to become an equally participant for paying off the loan taken by the borrower.
Banks demand for a loan guarantor when the debt amount exceeds a pre-determined minimum limit. While there are no fixed guidelines to this, each bank has different rules for a loan guarantor.
The loan borrower and loan guarantor are separate identities and must not be used interchangeably. A loan guarantor becomes relevant only when both the borrower and co-borrower default the loan payment.
Credit score and other financial credentials of a potential loan guarantor is analysed by the banks before taking a final call. Besides, your own loan seeking capacity will also reduce if you become a guarantor for someone else.
This is because banks will now take into consideration the amount of loans that you guaranteed for, when you apply for a separate loan. Any default or irregular payment of EMIs by the primary borrower will affect your credit score as a guarantor.
If the primary borrower dies or declares his inability to pay off the debt, banks have the right to approach the guarantor to repay the outstanding loan amount.
If you are a guarantor for home loan, a request can be raised to recover the amount by liquidating the property too.
If you refuse to repay the debt as a guarantor, banks have the right to take legal actions against you. In extreme cases, bank may seek possession of your property to recover its dues since you signed as a guarantor.
Once you agree to become a loan guarantor, withdrawing from the responsibility can turn messy. It requires an approval from both the bank and borrower.
The bank will not approve the loan guarantor's withdrawal unless another person is ready to replace him with equally eligible credentials.
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