You might encounter a relative, a friend or a business partner who may ask you to sign as a guarantor for his/ her home loan. And, being a close acquaintance, you might agree to do the same without even realizing your own liabilities.
Most often, banks, NBFCs and other lending institutions insist to get a guarantor on the loan. This mainly happens due to certain reasons, including the borrower’s credit history, financial statement over the last three years, disposable available for loan repayment, or various other reasons.
A non-financial guarantor is responsible to cooperate between the borrower and the bank to resolve certain issues, including customer contactability, follow ups on monthly repayments, etc. However, a financial guarantor might be responsible to even make the loan payments on behalf of the borrower if he defaults. So, in case the borrower defaults, miss, or run away with the payment, the guarantor might have to take the responsibility for repayment.
If you ever get stuck in a situation when you are asked to sign up as a guarantor for somebody’s Home Loan, always consider these five things:
If the lenders find a borrower’s loan application does not fit the credit norms, they insist on getting a loan guarantor. Being a guarantor for the Home Loan, you too have to make sure that the borrower is capable of repaying his/ her loan amount before you sign up the agreement. If you are confident about the borrower, then only consider undertaking the liability of loan repayment.
The lenders seek a guarantor to ensure that their loan money can be recovered if the borrower defaults or runs away. So, in addition to analyzing the borrower’s financial stability, you also need to assess your own financial standing so that you are able to make financial arrangements in case the borrower defaults and can pay his EMIs and late fees (if applicable).
Yes! As a home loan guarantor, you are putting your own Credit Score at risk. In case the borrower defaults or pays irregular EMIs, your Credit Score can go into the danger zone. It is advised to check your Credit Score first, and if it is already low, or borderline comfortable, consider avoiding signing up as a guarantor.
Signing up as a guarantor means you have increased your liability, which may reduce your own loan eligibility. Home Loan is a long-term commitment; hence, you may find it difficult to get a loan when you wish to buy a home yourself. If you’re confident enough that you will not require a loan in the immediate future, then only become a guarantor.
If you’re thinking of being a Home Loan guarantor, you should know its repayment term as will be tied to it until its entire recovery by the lender. Nowadays, Home Loan can have a repayment term anywhere between 5 to 30 years, depending on the borrower’s capacity to pay, his/ her age, and other criteria.
There are many financial liabilities and responsibilities associated with being a Home Loan guarantor, so, you need to be extremely careful before rushing into a complicated arrangement.
If you have signed up as a guarantor and it’s becoming difficult for you to get a Home Loan for yourself, you can connect with the Mortgage Specialists of MyMoneyMantra, a leading financial services distributor and have an association of over 60+ reputed financing partners. Our mortgage specialists with over 28 years of experience in Home Loans as well as Loan Against Property can help you with the affordable financial solutions.
To apply online for Credit Cards, Secured Loans and Unsecured Loans, visit www.mymoneymantra.com, the leading online lending marketplace that offers financial products from 70+ Banks and NBFCs. We have served 2 million+ happy customers since 1989.