Skip to main content

Role of the guarantor in a loan

A guarantor has to the pay the dues if the borrower defaults on the loan

 

WHILE helping a friend in need is indeed a virtue, it is best to exercise caution when it comes to money. This is particularly true while standing surety to a loan taken by an acquaintance. Banks typically ask the borrower to rope in a guarantor to protect themselves in case the borrower fails to repay his/her dues. In such an eventuality, the lending bank has the right to initiate proceedings against the guarantor to recover the dues. In fact, depending on the agreement signed, the bank can move against the guarantor simultaneously with the borrower or even independently.


   The surety cannot request the bank to exhaust other options before serving the notice. In other words, if the borrower has offered his/her assets as collateral, the bank need not wait till the process of staking a claim on the same is completed.


   The liabilities of the guarantor are completely intertwined with those of the borrower as the former is under an obligation to repay the amount if the latter fails to honour the commitment. Remember, wriggling out of the situation at a later date is next to impossible. Though you can try to get someone else to be the surety, accepting or rejecting the proposal will be entirely up to the lender.


   There is little that you, as a guarantor, can do once the default occurs, which makes it imperative for him/her to exercise extreme caution while accepting the terms and conditions of the agreement. The key is to satisfy yourself of the borrower's repayment capacity before giving your assent.


   Also, you need to know that if you do not give your consent when the credit limit is being enhanced, your liability will be limited to the initial loan amount. To that effect, you should ask for the insertion of a clause freeing you of the commitment in the event of the original agreement being modified later, without your permission.


   This apart, you should ensure that the agreement does not bind you into an unlimited liability. That is, you should seek clarity on the extent of your liability in the agreement. For instance, if it will hold even in the event of a willful default. Also, thoroughly scrutinise the procedure that is to be followed by the bank before invoking the guarantee.

 

Popular posts from this blog

What is Electronic Clearing Service (ECS)?

  As the name suggests, it's an electronic process through which money can be transferred from one bank account to another. According to RBI, this mode is usually used for regular payments and receipts, like distribution of dividend, interest, salary, pension etc. This mode is also used for collection of bills for telephone, electricity, water, various types of taxes, payment of EMIs , investments in mutual funds , payment of insurance premium etc. There are two types of ECS , like most other banking transactions, ECS credit and ECS debit. An ECS credit is used by a bank account holder , usually a large company or an institution for services like payment of dividend, in terest, salary, pension etc. If your mutual fund pays you dividend to your bank account, of all probability it is being paid through ECS credit.ECS debit, on the other hand, is used when a company or an institution is getting money from a large number of people. For example if you are investing in a mutual fund sc...

WEALTH TAX

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 WEALTH TAX   WHAT CONSTITUTES WEALTH? For wealth tax purposes, "wealth" means property , urban land, car, jewellery , yacht, boat, aircraft and cash in hand in excess of Rs 50,000. CAUTION POINT | Do not think you will have an easy escape from wealth tax by transferring your `wealth' without consideration to your spouse or minor child. Such assets will also be considered as your wealth. HOW TO DETERMINE YOUR TAXABLE WEALTH Add the taxable value of the above assets (computed as per the detailed rules for valuation) owned by you as on March 31 (for FY 2014-15, it will be March 31, 2015). In case you sold your car during the year, it will not be taxable wealth. Deduct loans if any obtained by you to acquire any of the taxable assets from the value of gross tax out for at least 300 days in a...

Equity Savings Fund

Invest Equity Savings Fund Online   The best part about these funds is that they are subject to equity fund taxation and at the same time are structured like MIP like funds . This new category, equity savings funds , offer a little of everything. They allocate money to equities & equity related instruments, and fixed income. They aim to generate returns by diversification. Such funds invest in fixed income and arbitrage to protect the investors from short term volatility and equity for capital gains. The best part of these funds is that they are subject to equity fund taxation and at the same time are structured like MIP funds.   MIP funds however are subject to debt fund taxation. Investors Equity savings funds are suitable for the following: First time investors who seek partial exposure to equity with less volatility and greater stability Investors seeking moderate capital appreciation with relatively lower risk Those wh...

8% Government of India Bonds quick guide

For those seeking comfort in safety of returns, the Government of India issued 8% savings bond once again comes to the fore. First launched in 2003, these bonds are issued by the government with a maturity of 6 years. The bonds are available at all times with specified distributors through whom you can apply to invest in them. Here is a quick guide to what the bond offers and its features to ascertain to check for suitability. What are Government of India bonds Government of India bonds are like any other government bonds with specified rate of interest. The rate is fixed at 8% per annum paid half yearly, or you can opt for cumulative payment of interest at the end of the tenure. You can buy these bonds from State Bank of India and its associates, other nationalized banks and some private sector banks such as HDFC Bank Ltd and ICICI Bank Ltd, among others. The bonds can be bought from the offices of Stock Holding Corporation of India as well. They are available in physical form onl...

Tax on Kisan Vikas Patra Returns

  Taxation of Kisan Vikas Patra The interest earned on Kisan Vikas Patra (KVP) doesn't enjoy any tax exemption   The interest earned on Kisan Vikas Patra (KVP) doesn't enjoy any tax exemptions. The interest earned from it is taxed as per the Income Tax slab applicable to the investor on redemption. That means an investor in the highest tax slab will pay 30 per cent tax on the returns from KVP . Also, 10 per cent of the interest earned would be deducted as tax deducted at source (TDS). ----------------------------------------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saving Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in india for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Franklin India TaxShield 4. ICICI Prudential Long Term Equity Fund 5. IDFC Tax Advantage (ELSS) Fund 6. Birla Sun Life Tax Relief 96 7. DSP BlackRock Tax Saver Fu...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now