Top 5 Things to Know Before Signing on as a Guarantor for Home Loan
Availing a home loan has many requirements. The borrower needs to fulfil the loan eligibility and submit the documents with the loan application. He/she should also have a good credit score to prove his repayment capacity. However, if the lender is still not satisfied with the borrower’s credibility, he can ask for a guarantor for loan approval.
The lender might ask for a guarantor if the applicant has a –
- Weak financial standing
- Poor credit report or credit score
- Is at an advanced age
Being a guarantor comes with some liabilities, which one should be aware of. The following are some aspects that you as a guarantor should know before signing the contract.
- It can impact your eligibility
Usually, the liability of a guarantor is equal to a primary borrower. So, if the borrower defaults in repayment, the lender can not only hold you liable, but it can adversely affect your credibility too. It can reduce your home loan eligibility, and you can face problems in availing a loan for yourself in future.
- What is the eligibility of a home loan guarantor?
To become a guarantor, you should be at least 18 years of age. You must be a resident of India or the country where the loan has been availed. You should also be financially stable to be able to pay off the loan if the borrower defaults. Moreover, you are bound by a contract until the entire loan is paid off.
- What is the home loan tenure?
When you are a home loan guarantor, you are contractually bound to the loan until the loan is paid off. Therefore, you should be aware of the loan tenure when you give consent to become a guarantor. Once the loan is repaid in full, you might also be asked to take the No Objection Certificate and release of guarantorship from the lender.
- Terms and conditions of the loan agreement
Before signing the contract as a guarantor, you should consider your financial stability. You should be financially secured so that you can repay the loan without disrupting your budget in case the borrower defaults. Also, you should be aware of the various terms and conditions and hidden charges of the loan agreement beforehand.
- Types of guarantors
There are two kinds of guarantors. A non-financial guarantor acts as a mediator between the bank and the borrower and helps to solve issues like delay in payments. On the other hand, a financial guarantor is financially responsible for the loan taken by the borrower. If the borrower defaults, the guarantor can be asked to pay the loan out of his/her pocket. You, as a guarantor can also be termed as a wilful defaulter.
There is no harm in being someone’s guarantor as long as you are assured that his/her finances are reliable. However, it is crucial to know that being a guarantor can impact your credibility and assets. Therefore, before signing the contract, ensure that the borrower is capable of repaying the loan.