Purchasing a home with a loan is a long-term financial commitment. However, with the soaring price of properties, a majority of middle and lower-income groups of people depend on financial institutions to assist them in acquiring their preferred property. In this context, lenders expect borrowers to adhere to certain loan terms and conditions.
However, sometimes borrowers are unable to avail a credit due to their low eligibility and poor credit score. During such a scenario, lenders allow a home loan guarantor to enhance the borrower’s loan eligibility and creditworthiness.
Factors to consider before being a guarantor
Since home loans are high-value products, most financial lenders prefer to extend funds against collateral or a home loan guarantor. The guarantor usually co-signs the loan agreement with the primary applicant and pledges their valuable assets for the cause of loan default by the borrower.
To become eligible as a guarantor, one’s age should be-
- More than 18 years of age
- A residing citizen of India
- Have a stable income to repay the loan efficiently.
When a borrower considers someone as a guarantor, he/she is contractually bound till the entire repayment is done. However, one can become their own home loan guarantor if she/he possesses another property to pledge as collateral. But financial institutions ask borrowers to bring a separate individual as a guarantor.
After knowing about the eligibility parameters of being a guarantor, let’s take a look at the factors of signing a loan agreement of a high-end credit facility like a home loan-
- Type of guarantor
Ideally, lenders require two types of guarantor’s, namely, financial guarantors and non-financial guarantors. If individual signs as a financial guarantor, the lenders will consider their financial documents, including the collateral. On the other hand, if one signs as a non-financial guarantor, then he/she will provide assurance regarding the primary borrower’s background.
The lender can connect the guarantor if they are unable to reach out to the primary borrower. However, unlike a financial guarantor, a non-financial home loan guarantor cannot be considered financially liable for any default in repayment by the borrower.
- Obligations of a guarantor
Usually, financial guarantors are obligated to repay the outstanding loan amount along with interest and associated dues. As per law, if the primary borrower defaults, then they should be listed as a “wilful defaulter”.
- Affects loan eligibility
Another factor to keep in mind before signing the loan agreement as a home loan guarantor is that if the borrower cannot repay the loan, the former needs to step in to complete the repayment. Due to this default in payment, the guarantor’s credit report and finances are significantly affected. Moreover, if the guarantor is willing to avail credit in future, his/her loan eligibility may be reduced, and he/she may not be considered eligible enough to avail the preferred loan amount.
- Importance of loan tenor
Considering the repayment tenor of a home loan is essential for a guarantor because he/she remains financially liable until the amount is entirely paid off. Once the repayment is complete, the guarantor needs to collect a NOC (No Objection Certificate) and guarantor ship release from the lender to complete the process successfully.
Apart from all these, individuals should know that financial institutions require guarantors for home loans only when the applied loan amount exceeds the specified limit or when the primary borrower possesses a poor credit score or history. To avail the preferred loan amount in such situations, one must seek a guarantor to meet the home loan eligibility criteria set by the lender.
Since one of the crucial aspects of being a guarantor is that he/she needs to repay the entire loan amount if the primary borrower defaults, in that case, the former needs to be well-aware about the levied home loan interest rates in order to avoid financial burden.
Besides, reputed housing finance companies extend substantial home loan amounts to eligible borrowers at an affordable interest rate and flexible repayment options. Moreover, they can also avail exclusive pre-approved offers extended by these financial institutions on a wide range of financing options, such as a home loan, loan against property etc. These offers significantly reduce the hassle of documentation and expedite the application procedure. Therefore, one can take a look at the pre-approved offer by mentioning his/her name and contact details.
Therefore, before being a home loan guarantor, one needs to assess their own financial capacity. There could be various repercussions as one pledges their valuable asset as collateral. It is therefore suggested not to agree to become a guarantor without knowing the borrower properly.
