A loan guarantor can be a family person, friend or colleague who is legally liable to pay off the outstanding loan amount in case if the primary borrower is unable to repay it. Initially, it seems very simple that it’s just a matter of doing signature only but there is lot more to it. If the primary applicant does the timely repayments then there is nothing to worry about but if he starts skipping EMIs then lender can reach out to the guarantor and ask him to pay the outstanding amount. If both the borrower and guarantor fail to Repay the loan then lender can take legal actions against both the borrower and guarantor too. In this article, we have mentioned few things to keep in mind “Being a Loan Guarantor“ that one should not take lightly.
Impact on your Credit Score: When you sign as a guarantor for someone else and the loan is defaulted, it negatively impacts the credit report of guarantor. However, if the applicant is prompt and repay the loan in timely manner then there will be a good impact on both the borrower’s and guarantor’s credit score.
Impact on your assets: In case of default, if the primary borrower is able to repay the loan then lender will initially try to liquidate the borrower’s collateral to recover money. If the borrower denies or escapes out then lender may ask you to pay off the outstanding amount. If you are unable to pay off then lender can seize and liquidate any of your personal asset such as land, property, etc. to recover the loan money.
Impact on the eligibility to get credit: If you are a guarantor for any loan then it will be counted on your open lines of credit, therefore, your personal eligibility will be hampered but if there is default then your credit score will take a hit too. In that case, if you want to “Apply For Any Loan“ then you may face difficulty due to poor credit rating.
Read the agreement clauses carefully: You must always be careful being a loan guarantor with the clauses in loan agreement that what will happen to the obligations of a guarantor in case of default. For instance, in case where the primary applicant dies or partners get separated after divorce, in these circumstances, loan should not be passes onto heirs.
Track the repayments yourself: Always keeps an eye on the repayments regarding the loan for which you have signed up as guarantor. A single default in monthly installments can be reflected in your credit report too, so be attentive and take an regular update regarding the loan repayments.
After reading all this, it is important for you not to take the role of guarantor lightly and be sure and keep these things in mind before signing up the agreement because you cannot back out later till there can be a suitable replacement and the primary applicant should agrees to do so.