July 10, 2020

Do you want to be a Good Samaritan to your friend or a family member or relative? You need to think twice before you become a Good Samaritan by signing as a guarantor for their Personal Loan. Being a guarantor for the Personal Loan that is being availed by your friends or relatives will make you liable to repay the loan if they fail to make repayment on time.

Becoming a witness and a guarantor are two different things. As a witness, you may have less responsibility compared to the guarantor. The guarantor is entitled with the huge responsibility of repaying the loan.

If you have already agreed to become a guarantor for Capital First Personal Loan or other loan and stand by the borrower in order to help them get the loan, then you should know the responsibility of a guarantor.

Here are the impacts of becoming a Personal Loan guarantor you should know if you are planning to be the one:

  • Repay the Outstanding Loan Amount: Your friend has applied for a Personal Loan and he requests you to become the loan guarantor by convincing you. You agree to become the guarantor for their Personal Loan and sign the agreement. You should remember one thing that your role of the guarantor is much more beyond being just an intermediary or contact person between the borrower and the lender. Being a guarantor means you are taking the responsibility to repay the loan amount if your friend fails to do so due to any reason.
  • Impact on Credit Score: If the borrower does not repay the loan amount then the bank lowers the credit score of the borrower and this directly reduces the guarantor’s credit score too. If you too fail to make the repayment of the outstanding loan amount, your credit score will be drastically impacted.
  • Sale of Guarantor’s Assets: If the borrower, as well as the guarantor, fail to repay the loan amount, the lender has the right to sell their assets after the verdict from the court in order to recover the loan amount that. So as a guarantor you should know how capable the borrower is to pay the loan amount and also how much you as a guarantor can pay in such a situation.
  • Impact on Your Future Loan Eligibility: Most of the banks and other financial institutions refer to the credit rating of the borrower taken from the credit bureaus like CIBIL, Experian, and so on to know the loan eligibility and repayment capacity of the borrower. If in case you have signed as a guarantor and the borrower has failed to repay the loan, this will impact your credit rating. That means your chances of getting a loan approval may diminish in the future.

You need to be extra cautious if you are becoming a guarantor for other’s loan. Make sure you know the borrower very well and understand their financial condition before signing the agreement.

In today’s world,  banks can easily find your credit information through credit bureaus. They can access all credit-related data of the person irrelevant of the fact whether you have maintained a bank account with them or not. Due to the increased transparency and information being accessed easily, it is recommended not to promise anyone of becoming a Personal Loan guarantor unless you know the borrower well enough and know their financial condition.

Responsibilities of a Guarantor

  1. As a guarantor, you cannot run away from the various responsibilities on the midway. You need to fulfill all the responsibilities related to the borrower’s loan amount until the end of the loan tenure.
  2. Before signing the loan agreement, make sure that you read it and understand each term carefully.
  3. Make sure you know the applicant very well and understand their financial behaviour and repayment capacity.
  4. Analyse your financial condition carefully before signing the agreement.

By becoming a guarantor for someone can impact your credibility of taking a loan for yourself in future. If in case the applicant fails to make payment, the guarantor too will be treated as a willful defaulter by the bank. This means that the responsibility for repaying the loan lies on both – the borrower and guarantor. The credit score of the guarantor is negatively affected in case of default in payment by the main borrower. Make sure you become a guarantor only to people whom you know very well and who are trustworthy. Read the loan agreement carefully before signing.

Jack Gavin

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