A Personal Loan is a credit that you can acquire to repay your outstanding bills and debts, plan a trip, or for other uses. Maintaining a good credit score will assist you in procuring this loan easily and hassle-free. A credit score is a three-digit number, which ranges from 300 to 900. This number shows your creditworthiness, and a score above 750 is deemed as a good number.
You can use the Personal Loan calculator available on financial institutions’ websites to calculate your monthly EMI. It will aid in planning your expenditures wisely. While assessing your eligibility, your credit score is the first thing a lender considers. Your lender may doubt your repayment ability if you don’t have a good credit score. In this kind of situation, you can apply for a Personal Loan with the help of a guarantor.
Who is a Personal Guarantor
A personal guarantor is someone who will sign your loan contract with you and guarantee your loan repayment. This individual may be a member of the family, a close friend, or a respected office employee. The agreement states the guarantor will be responsible for paying back the loan amount if you are unable to repay it or go into default.
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If you are considering becoming a guarantor, let’s look at a few important points you must keep in mind.
Things to Consider Before Signing as a Guarantor for a Personal Loan
Below are a few things that you must consider before signing as a guarantor.
1. Check the Financial Health of the Borrower
One of the most important things you must keep in mind is to examine the person’s repayment history. It will help you in knowing the creditworthiness of the person. If the individual has a good credit and repayment history, you can trust him/her. But, if he/she was a defaulter, you must avoid becoming a guarantor.
2. Read all the Clause of the Loan Agreement
Before signing the document, read all the points mentioned in the agreement carefully. By learning all clauses, you will be able to make an informed and correct decision as it will let you know about all the risks associated with your responsibility.
3. Prepare Yourself for Worst Scenarios
Even though you are only acting as a guarantor, you must prepare yourself for the worst scenarios. If the primary borrower becomes a defaulter, the burden of repaying the loan will fall on you. Hence, you must get yourself ready for this kind of situation.
Risks of Becoming a Guarantor for a Personal Loan
Here are the risks associated with the role of a guarantor.
1. Personal Assets at Risk
When the principal borrower becomes a defaulter, the debt is automatically transferred to the guarantor. As a result, in this situation, even if you don’t have money, you will have to find a way to repay the amount.
2. Credit Score may Get Hurt
If the primary borrower fails to repay the loan amount, it will negatively impact his/her credit score. And, being his/her guarantor, it will in turn, hurt your credit scores well. This will affect your overall financial health and may create difficulty in obtaining a loan in the future.
Several Personal Loans, including Wedding Loan, Travel Loan, Festival Loan, etc are available. Aside from these, many lenders offer a special Personal Loan for women at competitive interest rates, which is an added advantage for women.
Becoming a Personal loan guarantor is a good idea as it will allow you to help an individual, but it could also turn out to be the worst decision. Hence, you should be well informed to make a wise decision. However, you must remember the aforementioned points if you agree to serve as a loan guarantor. If you have already agreed to participate, you must remind the borrower to make payments on time and ensure that you both remain out of difficulty. Additionally, you should advise the borrower to perform extensive research before selecting a lender to take out a Personal Loan for women.