What are the implications of
standing guarantor for a home loan applicant like a friend, relative or office
colleague in case he defaults on repayment?
A guarantor is equally liable
to pay up the loan in case you miss out on repayments. By seeking a guarantor,
the lender tries to enforce a moral check that prevents you from defaulting. If
you are a salaried individual with a good quality service record and creditable
debt repayment history, financial institutions are assured of your financial
stability and credibility. If one does a small business with small profits, the
banks are taking a risk. To protect their interest in such situation, banks
look for a guarantor who is legally bound to make repayments in case of default.
The bank seeks a guarantor in case the loan applicant does not live in the same
city in which he is purchasing the property. If the nature of his job is such
that he will be constantly transferred or could go abroad, the banks need a
guarantor. The same is the case for self-employed individuals who lack required
professional qualifications. Absence of a co-applicant for a loan sometimes
calls for a guarantor. In most other cases, there is no personal guarantor
required as home is an investment to which people have emotional bonding. And
it has been observed that they are sure to go to any extent to keep it.
Who can be a guarantor?
Any friend or family member can
guarantee the loan. A guarantor has to fulfill the criteria relating to age and
income of a normal customer. The minimum income criteria vary from one housing
finance company to another.
How many home loans should one
stand guarantor for at the most? What is the limit that should be set and how?
To ensure that one person does
not stand guarantor for too many home loans, bank have a policy of not allowing
a person to stand as a guarantor for more than two loans.
