Banks have always been a helping hand in life. It is banks who provide helps out when we are urgently in need of cash. Services that banks offer are mutually beneficial. But what about someone who has taken a loan, can that person be a guarantor?
The most interested person in the guarantor is the creditor (bank), who issues the loan. The guarantor for the creditor acts in the role of insurance. In order to maintain equilibrium, it is of mutual interest that banks reduce interest on those loans in which a guarantor is present.
Thus, it becomes more profitable for the borrower to provide a guarantor and take the loan with less interest. Finance and loans services also benefit from this – reinsurance. The only participant in the process that remains without benefit is the guarantor.
Important criteria for being guarantor
Banks get more money back then they lend out so they are trying to do everything they can to give out loans. When this is the case, a guarantor is required if the creditor’s credit check is low and not suitable for a loan.
What are the obligations of a guarantor?
First of all, it is necessary to understand how the law perceives the guarantor, that is, what rights and duties it is endowed with.
As you know, the guarantor means that if the person who uses the loan cannot pay, the guarantor will have pay.
The condition of guarantor will vary according to the amount and type of loan used. For example, if the loan’s requirements are not very high and the person who is getting the loan has good credit score, a guarantor may not be required. In the case of loans with huge amounts such as housing loans, vehicle loans the bank will both mortgage the property and ask for a guarantor.
When banks issue credits, they approve and grant credits based on the credit score for the payment status of the debtor. Since the guarantor is also considered as a debtor; the guarantor will not be accepted if he or she does not fit the requirements of the loan.
Banks will look at the guarantor’s credit score and monthly income to determine their eligibility. Based on those factors the bank will have the option of either accepting or rejecting the guarantor’s application.
In other words, being a guarantor also means being a debtor, and they will be analyzed like a debtor and will be held responsible equally.
You need to be very careful when agreeing to be a guarantor because if the original debtor cannot pay the loan back it will be your responsibility to pay. You might not be ready to pay because you never thought your close would miss the payments. In that case, you will start to lose your credibility in eyes of the bank and it will be very hard for you got get loans in the future. Banks will not care if it was not your debt and someone else’s. As long as the paperwork goes, a guarantor is officially the debtor if the original debtor fails to fulfil their obligations.