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Things to Consider While Being a Loan Guarantor

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A guarantor is someone who agrees to be responsible for someone else’s payment of debt if the latter makes a default on payments of loan. Being a guarantor is not a mere formality to help the borrower, the guarantor is equally responsible for paying off the loan.


Requirement of a Loan Guarantor by Bank

Banks seek a loan guarantor when the loan amount exceeds a minimum limit. This is a regulation which the banks needs to follow. There are no fixed guidelines and each bank has different rules for a loan guarantor. So, before you agree to be a loan guarantor, it is important to understand all the terms and conditions for the same.

Loan Guarantor is not a Co-Borrower

Commonly, the terms of a co-borrower and loan guarantor are used interchangeably, however, this is a misconception. A loan guarantor comes into the scene only when both the borrower and co-borrower are unable to repay the loan and the bank considers that recovery is impossible due to some circumstances.

Credit Score is considered for Loan Guarantor

Your credit score plays an important role while being a loan guarantor. Your financial credentials are checked as per the criteria. Your own loan seeking capacity is reduced because banks also take into consideration the amount of loans that you guaranteed for, when you apply for loan. Any default or irregular payment of EMIs by the primary borrower affects your credit score negatively.

Legal Action if Guarantor Refuses to Pay

In case of disability or demise of the main borrower, banks have the right to approach the guarantor to repay the outstanding loan amount. If you are a guarantor for home loan, you can request to recover the amount by liquidating the property. A refusal to repay the loan, gives bank the right to take legal actions. In extreme cases, bank may seek the possession of your property to recover its dues.

Difficult to Withdraw as a Loan Guarantor

Once you have agreed to be a loan guarantor, it would be difficult to withdraw from the responsibility. The process of withdrawing requires approval from both, the lending authority and borrower. The lending authority usually approves this change only when there is availability of another loan guarantor.

To know more visit YES BANK's website and check out their Savings Account, Fixed Deposit and Personal Loan.


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