GUARANTOR SECURES LOAN

Sometimes a guarantor is required for a home loan. Many banks insist on one or two personal guarantors. The guarantors are required to meet the norms specified by the bank, which is usually similar to the norms for an applicant. Usually, only individuals can act as guarantors.
The guarantor basically provides a sort of security on behalf of the 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 the guarantor agrees to make the payment in the event of the applicant failing to pay the dues by the due dates. A guarantor should satisfy all the norms relating to age and income of a borrower. The guarantor is equally liable to pay the loan in case of default in repayment. Through a guarantor, the bank puts some sort of a moral obligation on the borrower to repay the loan. Relatives may act as guarantors in case the policy of the bank permits it.
The need for a guarantor arises because of the inherent loopholes in the system. The foreclosure laws — laws pertaining to recovery of a loan by disposing offthe property in case of default — are not very strong. As such, it is difficult to repossess the property of an applicant in case of default. In order to safeguard its interests and to ensure that the repayment of the loan comes on time, a bank insists on a guarantor. Usually a guarantor may be insisted on for loans above a specific amount, but 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.
Conditions when a guarantor is required:
• In the case of a sole applicant
• If the applicant 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 Lack of professional qualifications in a self-employed’s case
• If the applicant’s job is of a transferable nature
• If the borrower works in an industry where the likelihood of his going abroad for long is high
• Absence of a co-applicant to the loan

In future, the guarantor can apply for a loan if he is capable of repaying both the instalments — on the guaranteed loan and his new loan. If his repayment capacity does not make him eligible for another loan, and he wants one for himself, 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 for a guarantor.

Courtesy:- Times Property dt:- 07-11-09