So you have been asked to provide a guarantor on your loan. And now you are scouting to get one since the loan is required on an urgent basis. You have some close relatives and friends who you want to approach with the request. But what you do not know is who would be the one that the bank would accept as a guarantor. Let us look at the required attributes of a guarantor that would help you speed up the whole process and have the bank accept one.
Why there is a need of guarantor
First and foremost, let us understand the reason behind the lender asking for a guarantor on your loan application. Comfort or confidence in the timely repayment of loan by you is what would lead to a guarantor being asked. This could be on account of some past repayment issues on your trade lines or over all exposure. The guarantor acts as a collateral that the lending institution can liquidate in case there is any delinquency on the loan. The lender will approach the guarantor if the repayment default persists even in short term and irrespective of the reason behind it.
A guarantor needs to have a good credit repayment history in the first place. This is the most important factor for any individual being accepted as a guarantor. A good track record is testimony to the seriousness of the individual towards the obligations. It also indicates towards the seriousness and understanding of the importance of credit profile. The presumption is that the guarantor would not want to jeopardize his credit history and credit score for a loan where he stands guarantee and would compel the borrower to pay up. Also in case the situation is bad, he would have to pay up himself till the time the borrower regains the capacity to start repaying the EMIs.
Financial capacity and repayment also makes for an important factor to accept or reject the guarantorship of and individual. Similar to your financial capacity to repay and stability to repay the loan over longer period, the guarantor should also have good stead and must have sound financial background to be able to cover up for the loan monthly installments in case default happens. This is especially true to longer term loans like a home loan while the repayment mostly continues for over a decade.
The professional background of the guarantor also matters in getting accepted. In case of a professionally qualified individual or a person working with a renowned entity or a person with consistent high income over last few years, the chances of acceptance stand much brighter in comparison to someone with low income or having low work experience. A guarantor having frequent job switches or breaks in between jobs may also get rejected.
A person residing in the same city is always preferred in comparison to the guarantor residing in some other city. The chances of rejection of guarantor are almost confirmed if the lender does not have an operation in the city where the guarantor hails from. So it becomes important to have one from the city where the bank has presence if he is not from the same city where you reside currently.
Agreement to be a guarantor
The guarantors in all cases are informed about the liabilities that he would carry by signing on the line. This means that the lender will inform him very clearly that he would have to pay up the balance loan in the event of default and that his credit profile will deplete and would impact his capacity to take a loan in case he does not hold good on the obligation. So it is important that you must have a clear discussion with him before sharing his details with the customer. Obtaining your free credit report and appraising him of the reasons why you need a guarantor and also clearly sharing with him your current financial position and how you intend to repay the loan should be of help.
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