A personal loan is a type of unsecured borrowing option that does not require collateral or a guarantor. This type of loan is highly sought after due to its convenience and flexibility. A borrower must meet certain criteria to be eligible for a personal loan. However, certain circumstances may arise in which an individual may not meet these criteria. In such cases, they may be able to get a personal loan by presenting another individual as a guarantor for the loan. Financial institutions may also ask for a guarantor when they are not fully confident in the borrower's ability to repay the personal loan.
Personal loan guarantor
A loan guarantor is an individual who agrees to take on the responsibility if the borrower is unable to make his loan repayments. When the borrower fails to make payments, the lender transfers all repayment obligations to the loan guarantor, who is then equally liable for repaying the principal balance.
Lenders require guarantors to be financially secure individuals with a positive credit history. Generally, guarantors are family members, close friends or colleagues. The most important factor is that guarantors must possess a solid financial standing and be able to guarantee the borrower's repayment of the loan.
Tips for safeguarding yourself as a personal loan guarantor
You should take precautions to safeguard yourself if you decide to stand as a personal loan guarantor for a friend or member of your family. Here are a few tips to consider:
- Read the loan agreement: Thoroughly review all clauses and terms in the loan agreement to understand your responsibilities, potential liabilities, and any additional clauses that may impact you, such as repayment sequence or contingencies in case of the borrower's death.
- Seek a co-guarantor if possible: Having a co-guarantor can help reduce your personal financial exposure and provide extra protection in case the primary borrower defaults on the loan.
- Monitor timely repayments: While it may be challenging, it is your responsibility as a guarantor to periodically check on the borrower's repayment to ensure they are making on time. Being vigilant can help mitigate potential liabilities.
- Trust and reliability: Before agreeing to be a guarantor, ensure that the person you are vouching for is someone you can trust and who will not take advantage of your position. Establishing trust and open communication is crucial to safeguarding your own interests.
By following these tips, you can take proactive measures to protect yourself while fulfilling the role of a personal loan guarantor.
Impact of personal loan guarantor role on CIBIL Score
Being a personal loan guarantor can potentially affect your CIBIL Score, although it depends on the repayment behaviour of the borrower. If the borrower consistently makes timely payments, it can have a positive impact on your credit score. However, if the borrower defaults or makes late payments, it can negatively impact your credit score. As a guarantor, you are equally responsible for the loan, and any negative activity associated with the loan as it can reflect on your credit history. It is crucial to carefully consider the borrower's financial responsibility and ability to repay the loan before agreeing to be a guarantor, as it can have implications on your CIBIL Score.
Bajaj Finance Personal Loan stands out as a convenient financial solution, as it eliminates the need for borrowers to find a personal loan guarantor. Bajaj Finance Limited offers personal loans with easy-to-meet eligibility criteria. This streamlined process allows customers to enjoy added benefits such as substantial loan amounts of up to Rs. 40 lakh and the money being disbursed within 24 hours* of approval.
Click here to learn more about our personal loans.
