Jerry Watson 
Personal loans are unsecured loans, which means that the loan applicant does not need to put up any collateral in order to avail the loan. Some lending institutions thus often insist on a personal loan guarantor, especially when they aren’t sure of the borrower’s repayment ability. A personal loan guarantor is someone who proves the validity of the borrower, but also the person who confirms that the borrower can repay the loan, and by extension, he or she will be held liable if the borrower fails to pay their dues. A guarantor is therefore one of the ways that the lending institutions use to ensure that the money they lent is safe.
Who is a personal loan guarantor?
A guarantor is someone who is held liable for paying off the primary loan applicant’s debt if the latter defaults on payments. Keep in mind that being a guarantor is not just a formality to help the borrower secure a loan. The guarantor is equally liable for repayment of the loan.
When do lending institutions insist on a personal guarantor?
There are some scenarios where a personal loan guarantor might be insisted upon, such as-
- The borrower’s credit health is poor an does trustworthiness is thus affected
- The borrower’s employment status is under frequent change and relocation
- The borrower does not have a stable source of income, which might the cause of concern when it comes personal loan repayment
- The borrower’s academic background is poor
- The borrower’ age is towards the upper limit if the age eligibility criteria, as age related health issues might affect personal loan repayment capacity for the worse
- A personal loan guarantor is mandatory as per the rules and regulations of the leading institution.
Eligibility criteria for a personal loan guarantor
Many lending institutions have their own individual personal loan eligibility criteria to determine who can qualify as a personal loan guarantor. Typically, the guarantor with a steady income would be the preference, as it would be easier to recover the outstanding balance in the event of default.
Furthermore, the lender will also lean towards a person whose credit rating is good, and better than the borrower for the same reason as mentioned above. Some lenders may insist that the guarantor and principal borrower are employed in the same company so that their employer can be approached in the event of default by both parties.
Apart from that, there are a few common and mandatory rules that must be observed-
- The minimum age requirement is 18 years
- Their credit history must be excellent with no prior applications for bankruptcy
- They should be of sound mind in order to understand their obligations as personal loan guarantor.
- They should have a well-established relation and sufficient influence over the borrower to ensure timely personal loan repayment.
- The guarantor must sign the agreement of their own free will, without any coercion or under duress.
- They should have the right to seek legal aid and advice before signing the agreement.
- They should be fully aware of the borrowers outstanding debt, the payments to be made and all the financial aspects linked to the same.
- The lender must take upon themselves the responsibility of making the guarantor fully aware of their rights and duties before the guarantor signs the agreement
- Once the loan is approved, the guarantor must receive a copy of the personal loan agreement.
Should you agree to become a personal loan guarantor
As you cannot guarantee the actions of another person, being a guarantor also entails risk. However, as the decision to be a guarantor is very subjective, it should be based on the knowledge of the financial ability of the borrower to pay off the loan.
If it comes to your notice that the bank is insisting upon a guarantor because the borrower ‘s repayment ability is raising concerns over repayment, it is advisable to take a close look and consider the borrower’s financial ability yourself.
Conclusion
In conclusion, you must realize that there is no going back if you agree to become a guarantor and sign the agreement. After the loan has been accepted, you will no longer have the luxury to cancel your guarantee. Before you sign the dotted line, verify if the contract tells you the sum you are guaranteeing, the conditions under which you will have to repay the loan, and whether it is possible to raise the loan amount without your consent.
