Some banks and housing finance companies insist on a personal guarantor. The guarantor is required to meet norms specified by the bank. It is difficult to re-possess the property of a borrower in case of default. In order to safeguard its interests and to ensure the repayment of the loan is made in time, banks insist on a guarantor.
Although the liability is secondary, it is always there. One should act as a guarantor only if he is satisfied with the credibility of the borrower.
Usually, only individuals can act as guarantors. The guarantor basically provides a sort of security on behalf of borrower to the bank, that in case the borrower fails to repay the loan amount or other dues to the bank the guarantor will make good that shortfall. The guarantor has to enter into a deed of guarantee, where he agrees to make the payment in the event of applicant failing to pay the dues by the due date.
A guarantor should satisfy all the norms relating to age and income applicable to a borrower. With a guarantor, the bank puts some sort of a moral obligation on the borrower to repay the loan. An immediate relative may act as a guarantor in case the policy of the bank permits it.
Although usually a guarantor may be insisted on for loans above a specific amount, the more conservative banks insist on a guarantor irrespective of the loan amount involved. Some require a guarantor in all cases while others insist on a guarantor only if certain criteria are not met by the borrower.
Some of the conditions when a guarantor is required:
In case of sole applicant
If the borrower is residing in a city different from the city where he intends to purchase the property If the income of the borrower is variable in nature Absence of professional qualification in case of a self-employed borrower Borrower with a transferable job
If the borrower works in an industry where he may have to go abroad for long
In future, a guarantor can apply for a loan if he is capable of repaying both the instalments - on the guaranteed loan and his loan. If his repayment capacity does not make him eligible for a loan, the 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 specified norms.
In the event of the guarantor's death, the borrower has to get another guarantor.
Many banks insist on only close relatives such as wife, father, sister, earning children etc as guarantors.
