Things to know before you sign as a guarantor for a Loan

Home loans are huge in amount and that’s why most lenders secure them against collateral or a guarantor. The loan guarantor co-signs the home loan agreement with the primary applicant.

Responsibilities as a home loan guarantor

• Repaying the home loan in case of default
  This is the primary responsibility (or liability) of a home loan guarantor. For any reason, if the loan applicant defaults the repayment of the loan, the loan guarantor will have to repay the loan amount. Lenders usually send notices and give enough time to the applicant to make the payment. However, in case of defaulting 3-4 EMIs, a loan guarantor is asked to repay the amount along with the late fees.

• Complete responsibility throughout the loan tenor
  Once you sign up as a guarantor, you’ll be a guarantor for the entire loan tenor. So, for example the loan tenor is for 30 years, your responsibility as a loan guarantor will be for the entire loan tenor or the repayment of the whole loan amount, whichever happens earlier.

• A loan guarantor is not a joint applicant
  A joint home loan applicant is someone who has a stake in the property for which the home loan is taken. However, the loan guarantor might not have the stake in the property bought with the home loan.

• Your credit status
  Being a loan guarantor will reflect in your credit report. You credit score may take a hit if the loan gets defaulted. Also, you may have restrictions in taking any additional long-term loans.
  There could be a few reasons to ask for a guarantor for a home loan, like:

• High loan amount
  If the applicant for the home loan has asked for a huge loan amount, the lender might ask them to bring a loan guarantor.

• Low credit score
  If the applicant’s credit score is lower than the required credit score, a loan guarantor is required. An ideal credit score would be 725 or above.

• High risk job
  If applicant doesn’t have employment stability or have a risk of losing job, a loan guarantor is required.

• Advanced age
  If the applicant’s age is towards the upper limit of the eligible age, a loan guarantor may be required.

Additional read: 5 Easy tips to get your home loan approved instantly

Who is a guarantor?

A guarantor is a person who agrees to take responsibility for repaying a loan if the main borrower is unable to do so. By signing as a guarantor, you are legally committing to step in and clear the dues if there is a default. Lenders usually require a guarantor to reduce their risk in certain situations, such as:

• When the borrower is self-employed and does not hold a recognised professional qualification
• When the loan amount involved is relatively large
• When the lender is unsure about the borrower’s ability to repay on time
• When the borrower is buying a property in a city different from where they currently live
• When the borrower’s income is not consistent
• When the borrower intends to stay abroad for an extended period
• When the borrower’s job involves frequent transfers

Who can be a home loan guarantor?

• Someone with stable income and employment
• Someone with assets to use as the loan collaterals
• Someone with a good credit score
• Someone with repayment capacity in case of loan default

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