Everything You Need to Know About Guarantors in Personal Loans
Modern banking has become very convenient for everyone today as they allow people to borrow finances easily through different kinds of loans. Among the different loans options that are available, Personal Loans are one of the most easy and efficient ways to get money as they are collateral free. Furthermore, due to the technological advances, it has also become possible to avail a Personal Loan Online. However, guarantors are required at times by lenders when they think the borrower’s loan repayment capacity is lacking. Having a guarantor registered while availing a loan implies that in the event of default, a guarantor can complete the payment in place of the borrower. While it offers an advantage to the borrower, a potential guarantor should know about these concerns before signing up as one:
While it is implied, one should always sign up as a guarantor for a trustworthy and familiar person. It might seem as a humble favour, but in the event of a default, it can be a great risk to bear. As you might not be able to predict when such a thing can happen, it can be a sudden financial burden which might disrupt your financial plans.
Banks generally ask for a guarantor when either the borrower has a low income-level or when the credit history of the borrower is questionable. Furthermore, your involvement in this situation will also reflect in your credit history, which is why you cannot break the contract in case of a default.
Credit Score is an important factor which helps lenders decide whether it is financially safe to provide a Personal Loan to an individual. In case the credit score of an individual is low, the bank might request for a guarantor. Normally, if the credit score is below 750, the requirement of a guarantor might arise. Additionally, a guarantor should know that in case there are issues in repayment of the loan, the credit score of both the borrower and the guarantor will be affected, making future possibilities of getting a loan difficult.
Before signing up as a guarantor, one should inquire in detail about the loan amount, the method of interest calculation, and the number of instalments. Having prior knowledge about this can prepare you about the possible future concerns in advance.
While being a guarantor is a sign of being a good Samaritan, it also has a lot of risks attached. Considering these risks, a guarantor should be well informed.