Things to Know Before Becoming a Loan Guarantor

When it comes to buying a property or land then it can be near to impossible for many people to arrange the funds. This is why most of them take a home loan. However, the problem with home loans is that due to the high loan amount, the risk is also high from the lender’s perspective. This is why many banks and financial institutions ask the applicant to rope in a loan guarantor.

Image Source

Who is a Loan Guarantor?

A loan guarantor is someone who pledges for the repayment of the borrower’s loan. Thus, in case the borrower defaults or refuses to pay the loan, the lender reserves the right to get the amount from the loan guarantor instead.

Things to Know About Becoming a Loan Guarantor

Becoming a loan guarantor is a big responsibility, which is why you must think thoroughly before making any decision.

The following are a few things you must know about before you decide to sign the papers:

• Credit Score:

  If the borrower defaults on their loan then you are also held accountable. However, more than that, it also affects your credit score negatively. Thus, you won’t be able to get loans for yourself in the future.

• Property Loss: 

  If the borrower and you both fail to repay the loan then the lender may seize your property and sell it to get their money back. This provision is given under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

It goes without saying that you must agree to become a loan guarantor only if the requesting person is family or a really close friend. Unless you are not comfortable with taking the responsibility, there is no harm is saying “no”.