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If you are going to become someone's guarantor, then first you should know some important things. Many times people become guarantors on the request of a relative or friend without any information. Doing this is wrong. The decision to become someone's guarantor should be taken after careful consideration. Let us know what are the rules regarding this.
Borrower and Guarantor
The guarantor is also an equal debtor as the person taking the loan.
In case of default, banks first send a notice to the borrower, if there is no response then they can also send a notice to the guarantor.
Though the recovery from the borrower is done by the bank itself, if this does not happen then the guarantor will also be held responsible for the loan default.
Do all banks insist on a guarantor?
Not all banks insist on a guarantor.
Banks do this when they feel the guarantee is not sufficient and they doubt the applicant's ability to repay the loan.
For large loan amounts, it is necessary to have a guarantor.
Impact on Credit Score
CIBIL also maintains a record of those who provide guarantor.
The loan for which you have guaranteed will be deemed to have been taken by you.
If the borrower doesn’t repay the loan, your credit score could suffer.
Difficulty in obtaining a loan
Becoming a guarantor may make it difficult for you to obtain a loan in the future.
The amount you guarantee appears as a balance on your credit report.
If the person for whom you have guaranteed is not repaying the money then it may be difficult for you to get a loan.
What to do before becoming a guarantor
Only become a guarantor for a person you know well. Find out about the person's financial position and find out if he or she has ever defaulted before.
If you are already a guarantor then stay in touch with both the loan taker and the lending bank.
The guarantor should check your credit score regularly because if there are any issues, it will reflect in your score.
Ask the person for whom you are going to be a guarantor to buy a loan insurance cover.
Can someone be removed from the position of guarantor?
Banks do not allow this unless the borrower finds another guarantor.
Even if a second guarantor is found, it depends on the bank whether it allows it or not.
What to do in case of a mistake?
You can repay the loan by talking to the borrower.
The guarantor can later recover the money from the borrower.