Personal loans stand out to be convenient to get instant funds from many instant personal loan apps such as Paysense instant personal loan 2021 app, Afinoz app, etc. within the financial space. Getting a personal loan also engages a repayment guarantee to the moneylender.
Moreover, personal loans are free from any sort of collateral extension against the funds. Yet sometimes, when you don’t meet the eligibility criteria, lenders may ask you to get a personal loan guarantor to disburse the loan.
Meaning of a personal loan guarantor
- Well, a personal loan guarantor is the one who signs a loan deed alongside the borrower and comes up as a guarantor of his/her loan repayment. A person who can become a guarantor of the borrower must be a loved one, a well-trusted colleague, or a best friend.
- It’s huge accountability to be a personal loan guarantor of someone. Since with the acceptance of the position, you accept that you will be making the repayment if the first borrower defaults on the repayment of the loan.
- If you are demanded to be someone’s personal loan guarantor, there are a few things that you must be aware of prior to agreeing.
Responsibilities of a personal loan guarantor
As stated previously, a personal loan guarantor recognizes that if the borrower defaults on the repayment, s/he will require to pay off his/her debt. There’re abundant other aspects too that impact the signing on as a personal loan guarantor of somebody you know very well.
If the borrower pays off the loan timely and entirely, there’re not any bad effects of being a guarantor. And it even facilitates you to enhance your credit score.
Impacts of borrower’s default on guarantor
In a circumstance where the first borrower does not or can’t pay off, being a guarantor, the following are a number of the troubles you may come across:
- Contrary impact on credit score
- In the event of the first time borrowing, the borrower doesn’t service his/her loan timely, the credit score of the borrower and his/her creditworthiness reduces. But alongside, as a guarantor, your financial reputation also gets lower.
- Thanks to the borrower’s poor economic behaviour, your credit rating and repayment capability reduce in the eyes of credit agencies. This results in not getting favourable interest terms if you require any loan potentially.
- Assets put at risk
- When the borrower does not pay back the personal loan, the moneylender would reach out to him/her and ask for the payment of dues with appropriate interest and penalties.
- Again, the loan gets practically turned around you, since you’re the guarantor, and you can be asked to pay off the loan.
- So even if you did not borrow any funds directly, being a personal loan guarantor, you will completely be held accountable for repayment just in case of a non-repayment carried out by the borrower.
- Credit limit mitigates
- Since you stand as a personal loan guarantor for somebody, the credit agencies note it and account for the loan as a lien marked on your lines of credit. Therefore, your own capability to avail of a personal loan eliminates.
Tips to shield yourself as a personal loan guarantor
If you’ve got a choice to facilitate your friend or loved one for getting a much-needed loan by being their personal loan guarantor. In such circumstances, you can defend yourself to some level following the below-stated tips:
- Make sure that the person for whom you’re becoming a personal loan guarantor is someone who you rely upon and wouldn’t deceive you.
- You can invite a co-guarantor. Having another co-guarantor mitigates your exposure to loss. This extends you some protection.
- Perceive and be aware of all the clauses of the loan deed. There are clauses just like the sequence in which repayment must be executed, what takes place just in case the first borrower dies, etc. Any such clause can lay the liability at your hand.
- If feasible, keep a check on the timelines of repayments carried out by the borrower. As you stand as a personal loan guarantor, thereby, you must make sure that the borrower is making payments on time and no liability turns around you.
The Final Stroke
To sum up, lenders may invite a personal loan guarantor when the borrower features a poor credit score, the borrower is aged, or the borrower’s earnings are unstable. So, think far and considerably prior to becoming a personal loan guarantor for your loved one. Consider the aforementioned tips to make a smart decision across the same.
Moreover, you can turn around Afinoz (the best personal loan app) for the best personal loan deals in the financial space. To apply, simply visit Afinoz.com or download the best personal loan app from the Play Store.