Understanding the Role of Guarantor in Personal Loan
In the journey of achieving your financial goals, a personal loan can be your backbone. Whether you want to invest in your higher education or want to fund your first two-wheeler, it can help you get there without breaking your savings account or borrowing money from friends and family.
It’s extremely important to present a solid credit profile to increase your chances of approval. However, if you’re someone who is new to credit or doesn’t have a strong credit profile, a personal loan guarantor is your way to go. They won’t only help you increase your personal loan eligibility but also act as a pillar when it comes to making repayments.
Want to know how to unlock guarantor loans? Then keep reading this blog to find out.
What is a Personal Loan Guarantor?
Loan guarantor meaning is a person who is responsible for repaying the debt of the primary borrower in the case of any default. When the primary borrower is applying for a loan, they assign a guarantor to increase their chances of approval. The guarantor usually has a high credit score and stable income.
If the borrower is unable to repay the loan in any circumstances, the financial obligation shifts to the guarantor. To reduce the risk for both parties, the primary borrower usually chooses a close friend or family member to act as their guarantor.
Responsibilities of Guarantors in Personal Loans
Understanding the Key Roles and Risks for Loan Guarantors
Agreeing to be a personal loan guarantor involves important responsibilities beyond repaying loans in case of defaults. Both the borrower and guarantor must understand their rights and rules to avoid confusion during repayment.
Providing Personal & Credit Details
Guarantors must submit their personal information and documents to the lender for loan eligibility assessment and risk calculation on both borrower and guarantor.
Understanding Terms of Borrowing
Guarantors should review loan terms including interest charges, processing fees, EMI amounts, and repayment dates to be fully aware of their obligations.
Risk to Credit Score & Assets
A guarantor’s credit score may be impacted if the borrower defaults, and secured loan guarantors risk asset seizure by the lender in such cases.
Repayment in Case of Default
Guarantors are obligated to repay the loan if the primary borrower fails to do so, making this one of their biggest responsibilities.
Need Help Understanding Loan Guarantor Responsibilities?
Ensure you know all your rights and obligations when agreeing to be a personal loan guarantor. Stay informed and protected.
How Can You Safeguard Yourself as a Personal Loan Guarantor?
When you agree to be a guarantor, it’s important to know how you can protect yourself from any kind of negative consequences.
Here are some simple ways in which you can safeguard yourself as a personal loan guarantor.
Read the Fine Print Thoroughly:
When it comes to guarantor loans, the most important and precautionary step is the one you take before starting your application process. Reading the fine print.
As a guarantor, it’s important you understand all the terms associated with borrowing as it will also impact your credit profile. If you disagree with any clause, you can back down in time.
Ask a Co-Guarantor to Join:
Asking for a co-guarantor can reduce the burden of repayment during any kind of default. This won’t only help you share the responsibility with someone, but also reduce the risk of any negative consequences.
Keep Track of Repayments:
After the loan is sanctioned to the borrower, keep close tabs on the repayment to avoid any defaults. As long as the primary borrower repays their loans on time, there will be no chance of any repercussions. If you feel there could be a chance of missed payments, you can nudge the borrower to repay it on time.
When Do Financial Institutions Ask for a Personal Loan Guarantor?
Financial institutions ask for a personal Loan guarantor when the primary borrower can’t fit the criteria of the lender. Here are some reasons why this may happen:
Many lenders and financial institutions make it a part of their lending policy. This reduces the risk associated with lending people money.
Sometimes, a guarantor is required if the primary borrower is below 21 years of age.
Financial institutions may even ask for a guarantor if the primary borrower has a low credit score and income.
Understanding Impact of Guarantors for Loan Agreement
Applying for a personal loan with a guarantor who has a strong credit profile and high income can have a positive impact on your loan approval and terms.
Increased Chances of Approval:
Applying for a personal loan with a guarantor automatically increases your chances of getting instant approval for the loan. If the guarantor has a good credit score and high income, it reduces the risk for the lender. This automatically improves the loan eligibility for the primary borrower, increasing the chances of approval.
Best Terms of Borrowing:
A personal loan guarantor doesn’t only increase your chances of approval but also helps you get the best terms of borrowing. This includes lower interest rates, higher loan amounts and longer tenure.
Pros and Cons of Being a Guarantor for a Personal Loan
Pros | Cons |
While being a guarantor for a personal loan may not directly improve your credit score, it shows you are a responsible borrower who can be trusted with credit. | There’s a significant risk associated with being a guarantor for a personal loan. If the primary borrower fails to repay the loan, then the guarantor is obligated to complete the payment. |
Being a guarantor can help your friend or family member increase their chances of loan approval. | If the primary borrower defaults on their loan repayments, it could lead to a negative impact on your credit score. |
Conclusion
A guarantor plays a significant role in being an enabler for one’s financial goals. You’re not only helping your friends and family increase their chances for instant personal loan approval but are also helping them get a step closer to their aspirations. However, being a personal loan guarantor is a very serious responsibility. This is why it’s important to consider all the pros and cons to make an informed financial decision.
Frequently Asked Questions
Is A Guarantor Required For A Personal Loan?
While not all lenders require a guarantor for a personal loan, it can help you increase your chances of loan approval.
What Is The Role Of Guarantor In A Personal Loan?
A guarantor in a personal loan is responsible for repaying the debt of the primary borrower in the case of any default.
How Much Can You Borrow With A Guarantor?
While different lenders offer different loan amounts based on numerous factors, applying for a loan with a guarantor can help you unlock higher loan amounts.
What Requirements Do I Need To Fulfil To Become A Guarantor For Someone?
To be able to fulfil the role of a guarantor for someone, you need to be an eligible borrower with a high credit score and stable income. Since these criteria can be different, it’s important to check the required eligibility of the lender thoroughly.
What Are The Risks Of Being A Guarantor Of A Personal Loan?
Being a guarantor of an unsecured personal loan has some risk associated with it. For instance, if the primary borrower is unable to repay the loan on time, then it’s the guarantor’s responsibility to complete the payment. Non-repayment can also lead to a negative impact on the credit score of the guarantor.
Who Is Eligible For Loan Guarantor?
While this depends on the criteria set by the lender, there are some common requirements. This includes a minimum age of 21 years old, a high credit score and a stable monthly income.
Does Guarantor Affect Credit Score?
A guarantor can help you increase your chances of getting an approval for a loan. However, it won’t affect your credit score.
Can A Guarantor Withdraw His Guarantee?
After agreeing to the terms of borrowing and the liability, the guarantor cannot withdraw his guarantee.
