Factors to Consider Before You Sign Up As a Home Loan Guarantor
Buying a new home is certainly a big achievement in an individual’s life. It is one of the top priorities when it comes to the ambitions of an average Indian. Needless to say, nobody wants to keep paying house rents throughout their life. But considering the high property prices, buying a house is quite a pricey affair. This has also resulted in the increase in demand for home loans. Now a days, a person can apply for the loan online and get instant quotes. This is one of the most popular options for those looking to buy a new house. It has been often found that people ask their friends or relatives to become their loan guarantor. Loan lenders such as banks and NBFCs insist upon a loan guarantor for several reasons. This can be due to the bad credit history or financial standing of the borrower or an inadequate income for the loan eligibility.But before you think of becoming a guarantor, you need to consider a few important factors. Role of a Home Loan Guarantor A guarantor mainly plays two roles. A non-financial guarantor acts as a mediator between the borrower and the bank to resolve issues such as delays in payments. However, a financial guarantor might have the responsibility to pay the loan in case of any defaults by the borrower. Your Liabilities As a Guarantor A bank enlists a loan guarantor in order to make sure that the loan amount is recovered. Apart from the borrower, it is also important for you to have a proper understanding of your financial stability. In case the borrower defaults, it is you who have to pay all the EMIs including the late fees (if applicable). Defaulting Will Also Affect Your Own Credit Score It has to be noted that as a guarantor you also risk your own credit score. First of all, you need to know what your credit score is and if you can afford to be a guarantor. We would advise you to avoid being a guarantor if you already have a low credit score. Moreover, if the borrower makes the payments irregularly, it will also impact your score. Standing As a Guarantor Can Affect Your Own Loan Eligibility Both the primary loan borrower and the guarantor share equal liabilities in the eyes of the bank. Any late payments or default will negatively impact the credit report of the guarantor. This will, in turn, reduce the loan eligibility. As the home loan is a long-term loan, you may find it hard to get a loan for yourself if you want to buy your own property. Before signing as a guarantor, make sure that you have no plans for taking a loan in the near future. Know the Tenure of the Loan Being a guarantor, you will be tied to the loan until it is completely paid off by the borrower. Therefore, it is always advisable to learn about the tenure of the loan before signing up. Once the loan is settled, the guarantor has to obtain an NOC (No Objection Certificate) from the bank to release them from being a guarantor. You must exercise care before you take the decision of signing as a home loan guarantor. Make yourself aware of all the terms and conditions. It is a big responsibility so give it a thought before taking that big plunge.
