During times where most people have either been fired from their jobs or have suffered salary cuts, it is very difficult to do the necessary unavoidable expenses. Therefore, many people resort to Personal Loans for this purpose. Since personal loans give you the flexibility of the end-user, it is widely used for purposes such as funding education, medical expenses, home renovations etc.
Repayment obligation:
The legal role of a guarantor turns into the borrower's legal role if the original borrower defaults. This means that on default by the original borrower, the guarantor becomes liable to pay back the outstanding amount which the original borrower has not paid. A guarantor is the first person the credit lending agency would turn to for extracting the outstanding money.
The monthly salary of the guarantor can be taken to compensate for the original borrower's default. The bank or any other credit lending agency can turn to the court for this.
Assets accountability:
If the original borrower is nowhere to be found, and the guarantor's salary is not enough to compensate for the outstanding amount, the personal assets of the guarantor can also be sold by the credit lending agency to recover the loss. Therefore, before signing as a guarantor, be sure of your repayment capacity and if it would be enough to pay back the money the original borrower owed.
Credit Score:
If you are a guarantor of a loan that has been defaulted, your credit ratings would be negatively affected. Even if you have always paid your credit payments timely, the liability towards you as a guarantor is just the same as the borrower when the original borrower defaults.
Reduced borrowing capacity:
On default, the profiles of the guarantor as well as the original borrower would be reported to the CIBIL authorities, Since the amount the original borrower has defaulted and is now liable against the guarantor. This will show up in the guarantor’s CIBIL score and would reduce the credit availing capacity of the guarantor.
Once you have signed up for this responsibility, it is very difficult to withdraw from this responsibility then. For withdrawal, the approval of both the parties, the credit lending agency and the borrower is required. The bank would usually approve only if there is another guarantor available to sign up for the liability.
Difference between the borrower, co-borrower and guarantor -
People often find it troublesome to differentiate between these terms. Let us understand who they are and what their role is.
A borrower is a person who has taken the loan and all the liability lies on the borrower at first.
The borrower is supposed to repay the outstanding amount on time.
A co-borrower is a person whose name appears along with the borrower's name in the loan document.
The borrower and the co-borrower are equally liable to pay back the loan.
A guarantor comes to the picture at the last when the borrower, co-borrower are unable to pay back the loan. At this time, the guarantor becomes liable to pay back the outstanding amount of the loan.
Who can apply for personal loans?
Most salaried individuals and self-employed people can apply for personal loans. With impressive interest rates and Instant Personal Loan, Banks such as SBI, ICICI offer attractive Personal Loan products.
For those who need the funds urgently, a personal loan becomes an easy choice. It is recommended to have a detailed comparison before going for any personal loan from any bank. There are numerous websites that show you the comparison between different interest rates, etc.
You can use tools such as ICICI Personal Loan Calculator etc. to do an accurate and fast calculation of your monthly EMI's. Doing this calculation manually becomes a tiring task, using calculators like these greatly help you save your time and get accurate amounts. Personal loans have proved to be a boon for people in distress because of no money and have helped them giving them financial independence and power.
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