Guarantor Loan 

When getting a personal loan becomes difficult because of low income or a poor credit history – a guarantor loan can be an alternate option. Guarantor Loan is a personal loan where the borrower must be supported by someone else – the guarantor.  

But there are risks involved, so make sure you understand the terms of guarantor loan before signing up for the same. 

The person acting as a guarantor agrees to repay the loan in the event the borrower is unable to repay it, effectively ‘guaranteeing’ the repayment of the loan. Guarantor loans are often required when the borrower is unable to get a loan in the normal market. This can be due to multiple factors, such as low income, a new job, a poor credit history, or a lack of credit history.

Who can be a Guarantor?

Your acquaintance and close relatives like family, friends can be a guarantor. But one must consider the fact that they cannot share a bank account or have related financial links. 

Anyone above the age of 21 can become a Guarantor. Like in every case, the guarantor needs to have a good credit history and repayment track record, so as to win the lender’s trust that he/she will be able to repay the loan on time. 

Understand the risks involved 

Being a guarantor comes with its own set of risks. The major one is that the guarantor is responsible to make the repayments, if the borrower defaults or fails to do so. However, there are other risks also that guarantors may have to face. 

Since defaulting affects the credit score, it will affect the credit score of both borrower and guarantor.  

Guarantor’s liability is not limited to the amount borrowed. Indian Contract Law uses the word ‘surety’ for guarantor and Section 128 of the Indian Contract Act clearly states that ” the liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract “. This means that the guarantor will not only be responsible for the principal loan, but also for any interest and charges that may be due on the loan. 

What should be done if you are Guarantor 

As a guarantor, it is essential to be responsible. Make sure you are financially aware. You also need to be aware about the borrower’s payment history of the loan. A proper communication is an absolute must. Because your credit score will also be affected in case of loan repayment defaults. So, know how much EMI you need to pay, the repayment tenure etc. In case there are any errors in your credit report, make sure you rectify it on time. 

If you need a low salary personal loan, you can apply for it on Finserv MARKETS. With a loan amount as high as Rs. 25 Lakhs, you can get approval on loan in just 3 mins. The documentation is minimal, and no collateral is needed. So, apply for a personal loan on Finserv MARKETS today!