5 things you should know before signing up as a home loan guarantor
Home loans are tricky to attain. They involve a lot of work and assessment. But, if the bank finds the debtor to be in a weak financial condition for the type of home loan he/she is after, then they would simply ask the potential debtor to call someone else to co-sign the loan as their loan guarantor.
If you have been recently asked by someone from your friends or family to become a home loan guarantor, then you might feel obligated to sign without much thought. But, you shouldn’t do so as sometimes the loan can impact your credit standing as well; and if not executed properly, it can also be financially disastrous for you.
So, to make sure that this deal does not work against you, there are a few things that you should take into consideration before deciding to sign as a home loan guarantor. These things are:
The nature of the guarantor
If you are asked to sign up as a non financing guarantor, then you will be responsible for liaising the borrower and the bank in case of delays in payment. While on the other hand, if you are asked to be a financing guarantor, then you might have to make the loan payments yourself.
The purpose of needing a home loan guarantor
You need to thoroughly understand the reason why there is a need for a guarantor in the first place. Banks normally ask for a guarantor, if the borrower’s financing capabilities is a bit shaky and the bank can’t trust the borrower. So, you have to make sure that no matter who the borrower is, he/she has to make the loan payments on time. Or else you will be liable for any delays.
The liabilities of a home loan guarantor
Banks want to make a guarantor sign up is because they anyhow want to recover the money that they lend. So, you have to consider all the liabilities that you might face once you have signed as a guarantor on the home loan. You have to consider your own financial situation and think if in the future this loan can catch you off guard and leave you in debt. You might have to pay the EMIs of the loan and even the late fees that might pile up.
You can lose your own credit record
If you sign up as a guarantor to someone who has a bad credit history, makes late payments, and drags you time and again between the processes of loan payments, then you can find yourself at the short end of the stick in the bargain. Moreover, you can lose your own credit history and the ability to attain loans in the future because of this bad deal. This can further be quite harmful to your own credit requirements in future.
The term of the loan
If you do decide to sign up as a home loan guarantor, then you will have to consider the fact that until the entire loan amount with interest is recovered, you are bound to the deal. Your own home loan eligibility will be vastly reduced, and you will have to face all the challenges and liabilities that might arise during to the home loan period. This is something that can last for years and even for decades.
So, keep all of these aforementioned conditions in your mind before you decide if you would truly want to sign up as a home loan guarantor or not. While doing your duty towards your friends or family is good, you cannot simply screw your very own financing position without question.
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