Factors to consider before you become a home loan guarantor

Being a guarantor for the home loan is like taking responsibility for some-ones else assets by guaranteeing to repay in case of the original borrower of the home loan defaults on loan. The bank, in certain cases, may not approve the home loan of the borrower and thus may only approve the loan if some guarantor is available for the loans so that the loan does not turn into bad debt. There could be various reasons for the bank to ask for the guarantor that can be due to poor credit score of the borrower, the lower salary of the borrower compared to high demand for the number of loans, fewer savings of the borrower, unstable job of the borrower wherein frequent job changes have been seen or else working on a contract basis. Also, for the people who work in dangerous conditions where there is a threat to life like working under the coal mines, construction site or else working at the battlefield in the Indian army. In such instances bank can ask for a guarantor. Also, if the borrower is facing any serious health issues like being a cancer patient or any other dangerous diseases, then a guarantor could be required.

Also, the guarantor should be financially stable is the foremost important criterion. If the guarantor itself is under debt or financial burden, then, in that case, the loans may get rejected. Also, the guarantor should have a stable income and repayment capacity of the pending debt, leading to the default of the loans. Though the bank can seal the assets in case of the home loans bank takes utmost care that the loan should not turn into bad debt. The representation of the bank performance also puts a bad impression if the loans turn into bad debt as the banks have to periodically review their financial health and make it public the quarterly profits posted by the bank, non-performing assets, funds underutilization, amount of the loans being disbursed, deposits accepted. etc. In that case, banks try that their non-performing assets or bad debt should be minimum and thus carefully disburse the loans. The bank provides loans only to the active working people and the ones who are found physically fit. The borrower should be financially stable and have a sufficient bank balance to repay the loans and a good salary.

Factors to consider before you become a home loan guarantor

• Assess our financial health before becoming guarantors:

The common guarantor usually is amongst the family members only. Thus, even in that case, the guarantor should assess their own financial health and accordingly analyze whether it would be affordable or not to become a guarantor. Also, the guarantor should not face financial trouble if the original borrower is unable to repay the loans.

• Read the terms & conditions of the loans:

As a guarantor, the guarantor must read the home loan agreement carefully before proceeding with the application. There could be the presence of various misleading clauses being mentioned in the agreement, which can lead to problems in a later stage for the guarantor. The guarantor is held equally responsible for the default of loans if the original borrower defaults on the loans. Thus the guarantor should be careful while proceeding ahead with the application of the home loans.

• Know the exact reason for requirement as a guarantor:

The guarantor should know why the bank has asked for the guarantor of the home loans. Sometimes the original borrower could have willfully defaulted the loans, and thus, the bank could have asked for a guarantor. In such cases, the original borrower can certainly default the loans for the second time. And thus, the guarantor should be careful about the frauds, even in being a family member.

Know the credit history and behavioral patterns of the borrower:

•  The credit history of the borrower should be known. Sometimes the borrower may have a bad habit of defaulting someone else’s money. Also, the original borrower may have the habit of spending extensively, which may lead to frequent financial problems for the borrower. Thus in such cases, it is recommended to the guarantor not to extend the support to the original borrower even if the bank is not ready to approve the loans without the guarantor.

Being careful while being a guarantor is necessary. The support as a guarantor should be extended only to the needy and the person who has the right mentality. The borrower should be an honest person only then it is worth extending support as a guarantor for the home loans. Otherwise, the guarantor itself may land in a financial problem due to the original borrower.