Thursday, 11 December 2014

Banking on Trust - Liability of a guarantor

Outlined below are a few major points indicating the role and responsibility of a guarantor of a home loan.

Some banks insist on the borrower providing a guarantor while availing a home loan. A guarantor guarantees the repayment of the loan in case the principal borrower fails to repay it.

The guarantor provides a security on behalf of the borrower to the bank that in case the borrower fails to repay the loan amount or other dues to the bank the guarantor would make good that shortfall.

Only individuals can act as guarantors. The guarantor has to enter into a deed of guarantee, where he agrees to make the payment in the event of the applicant failing to pay the dues by the due date.

The guarantor is required to meet the norms specified by the bank. He should meet all the norms relating to age and income of a regular borrower. The guarantor is equally liable to repay the loan in case of default in repayment by the borrower. With a guarantor, the bank puts some sort of a moral obligation on the borrower to repay the loan too. A close relative may act as a guarantor in case the policy of the bank permits it. Usually, banks insist upon a guarantor if the loan amount exceeds a specific amount, which depends from bank to bank.

Some conditions when a guarantor may be required:

In case of a sole applicant If the applicant is residing in a city that is different from the city where he intends to purchase the property If the applicant's job is of a transferable nature If the borrower is in an industry where the chance of him going abroad for long periods is high In the absence of a co-applicant to the loan if the income of the borrow er is variable in nature Lack of professional qualification of the borrower In case of the self-employed It is to be noted that the guarantor can apply for a loan for his own use if he is capable of repaying both the installments on the guaranteed loan and the new installments of his loan. If his repayment capacity does not make him eligible for a loan, the original borrower may have to arrange for a replacement guarantee. This has to be done by releasing the current guarantor and providing the bank with another guarantor who meets all the specified norms. In case of a guarantor's death, the borrower may be required to furnish another guarantor and get the original one replaced with the new one.

The liability of a guarantor arises only when the main borrower fails to repay the loan amount.

The bank can then make the guarantor repay the debt owed by the borrower to the bank. Before acting as a guarantor, one should be aware of the liability and risks involved. It is not just a question of signing on a piece of paper.

Fast Facts:
A guarantor will be considered a defaulter, which will be reflected in his CIBIL record, thus affecting his ability to get a loan in the future in case of default by the main borrower.

Times Property, Dec 06, 2014

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