Posted On: 28-July-2022
Personal loans are loans that are given by the financial institutions in order for you to meet your urgent need of money. These are instantly available based on certain criteria. Therefore to avail the personal loan you must meet the criteria set by your lender. But there may arise a time when you cannot meet the criteria put forward by a specific lender. For times like that you can secure a loan by providing a personal loan guarantor. When you apply for personal loan with a guarantor, your loan guarantor basically gives his or her guarantee to the lender that either the borrower will repay the loan or the guarantor himself would if the borrower defaults.
The lending institutions can ask for for a personal loan guarantor for different reasons.It maybe because it's their in their company's policy.In case the income of the borrower is unstable in nature.If the primary borrower belongs to the senior citizen category.If the credit score of the borrower is low.Anything that may make the lender question your creditworthiness.
The are effects of being a personal loan guarantor. If the loan is being paid on time and in full then there are no effects and infact it improves the guarantor's CIBIL score. But in situations where the primary borrower cannot repay the loan the guarantor faces the following consequences.
1. When the borrower fails to pay for the loan he had taken the lender or financial institution will go to the guarantor and ask for the payment of the dues, together with the interest as well as the penalty. On instances like this, the loan is practically transferred to the guarantor even though you as a guarantor did not borrow any amount directly and it is you who will then need to find the means to repay the loan.
2. If the borrower doesn't pay the loan on time it directly affects his credit worthiness as well as his credit score. What's not a known fact is that the more the borrower's credit score is affected the more affected your credit score will be. As a result when you go for a loan next time you may not receive favourite loan repayment options.
Therefore, you must safeguards yourself as the loan guarantor. Safety is your concern and if you want to help somebody you know of by being his guarantor just make sure to be careful so that you meet no future risks. You as a guarantor must be aware of the terms and conditions laid down in the loan agreement. You can also ask for a co-guarantor which would reduce your risk of being the only one to repay the loan in case the primary borrower fails. You must check the timeliness of the loan repayment since your credit score will directly be affected by the borrowers behavior of loan repayment. Also you must make sure that the person for whom you're turning yourself as the guarantor is someone you know of, someone whom you can trust.