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Think Wisely about Pros and Cons of being a PL Guarantor

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Remember, whenever you are applying for a personal loan, don't just get carried away with a low-interest rate by one bank. Do a proper comparison between different lenders like SBI Personal Loans, Indiabulls personal loans etc. Although it's only advised to take a loan when you are well aware of your repaying capacity and are certain that you would be able to repay the amount within the stipulated time, personal loans now are also personalised and can be modified according to your needs.

Even though it's easy to get a personal loan these days, there are chances that your application might get rejected. Though, having a guarantor can help you with it. You can check SBI Personal Loan on our website to check lates offers and schemes.

  • A guarantor is someone who makes the promise to pay the outstanding amount of the borrower in case the borrower fails to pay the amount themselves.

  • 2 terms are confused with guarantor more than often- borrower and co-borrower. Let's understand their meaning.

  • A borrower is a person who has applied for the loan and on whose the liability of the repayment lies before everyone else.

  • A co-borrower is a person whose name has been mentioned along with the borrower's name and holds equal liability to pay as the borrower.

  • Before jumping to the pros and cons, let us understand the role of a guarantor.

Repayment commitment:

The lawful role of a guarantor is to pay the borrower's outstanding amount if the original borrower defaults. This means that on default by the borrower, the liability to pay back shifts from the borrower to the guarantor. After the borrower or co-borrower, the credit lending company would turn to the guarantor to extract their money. It's advised to use a Personal Loan Calculator first to see how much you would have to pay in case of a default.

The monthly earnings of the guarantor can be obtained to compensate for borrowers or co-borrowers' default. The bank or any other credit lending agency can request this to the court.

Assets accountability:

When you sign up the loan agreement as a guarantor, you also risk your assets along with your salary. If the borrower or co-borrower defaults, and your salary is not enough to write off the loss, then the next thing the credit lending agency would turn to is confiscating your personal belongings. They would then sell these to offset the loss.

Credit Score:

If the borrower, co-borrower defaults on the payment, not only their profile would be sent to the CIBIL authorities with the information of default, but you being the guarantor for a person who has defaulted would also reach the authorities. This would make your credit score go down as well.

Reduced borrowing capacity:

Because of the reduced credit score, you will now have your credit borrowing capacity reduced. It's because of low credit score and the information of default by the borrower for whom you signed up as the guarantor reaches to the lenders and it makes them feel you would also have a similar financial condition as the borrower (usually people take guarantee of someone very close such as children or spouse).

Pros of being a Guarantor:

  • Flexibility

You don't have to take the guarantee of the whole amount. The guarantee can also be limited to a certain portion of the whole amount. This means you have the flexibility to choose the limit of liability while maintaining good relations with the person who asked you to take the guarantee.

  • Maintaining relations

When someone asks you to take a guarantee, it's as hard for you to deny it as it is for them to ask you for such a huge favour. Therefore, taking a guarantee for your loved one's would help you to maintain good relations with them.

Cons of being a Guarantor:

  • Risk of losing assets

Since the credit lending agency has the right to sell your assets to cover up their loss, all of your personal belongings pose an equal risk of getting sold in case the borrower or co-borrower defaults.

  • Risk of losing salary

Your salary is the first component to go towards the offsetting of the loss. If you don't have enough savings to take care of yourself in case your salary is directed towards the lending agency in case of default, just don't take a guarantee.

Conclusion:

Taking a guarantee only makes sense if your financial condition is better than the borrower, otherwise, if they are unable to pay back the loan, it would be extra difficult for you to repay the same amount.

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