To become a guarantor is very difficult part you never know the friend or relative for what you are signing as a guarantor will not betray you. So before signing as a guarantor for anyone understand the pros and cons of being a guarantor especially in current scenario when there is no security of job.
First lets us see who is a guarantor. A guarantor is a person who consents to be accountable for the payment of someone else's debt, in case the later default on payments. The person who signs as a guarantor is equally responsible for paying off the loan.
Before giving a guarantee for someone obtain knowledge about the borrower's financial position and the job security. In case the borrower will be changing the job or he is already in debt, then the guarantor has to pay off the loan.
When accommodating a person to the bank as a guarantor and bank requests for a guarantor because it is not satisfied with the borrower's loan repayment capacity then check carefully the borrower's financial position yourself so that you do not get cheated.
Banks ask for a guarantor because of the credit-worthiness of an applicant but this certainly doesnt mean that speculation is being raised on borrower's credit-worthiness. There are many other reasons for the asking a guarantor:
1. The Applicants' job may be a transferable job;
2. The applicable job profile may be such which involves frequent travel abroad;
3. The borrower may have applied for a loan from some other place other than the permanent address.
If you sign as a guarantor for a person who is very close to you, but later on that person defaults on the repayment then you will be legally bound to pay off the debts if the primary borrower defaults. Bank will approach to you for the repayment of the debt. Bank can take over your personal assets such as bank accounts, cash as well as property can be attached (except for provincial fund and agricultural land which can not be attached under any court decision) and you may get bankrupt.
In one of the case the Supreme Court has reiterated through a decision that a guarantor can not back out of the loan commitment once made.
Your credit rating can also get affected in a way, if in future you need any credit, your chances of getting credit can be muted. Most of the banks and financial institutions check the credit rate and look at the loan for which you have signed as a guarantor. Then before giving you a loan they will deduct that remaining loan amount from your loan eligibility. Moreover, if the borrower has not made payments during the loan period this will also show the guarantor's credit history. And this can reduce your chances of getting a loan.
Therefore before signing as a guarantor check for everything, understand the terms and conditions configured by the bank for the guarantor and read the contract properly in which the amount you are guaranteeing is clearly stated. Then the conditions in which you may be asked to repay the loan and if the amount to be borrowed can be increased without informing you. The most important thing to remember is that there is no turning back once you sign on the dotted lines of a guarantor.