A personal loan is a loan taken to fulfill your personal needs, goals and aspirations. The best part about a personal loan is that bank doesn’t ask the reason for which you have taken it. A personal loan is getting massive popularity among the youth. The interest rate on a personal loan is relatively lower than payday loans. The most intimidating part about talking personal loan is that people with low credit rating can also avail it but they need to have a guarantor for that. A guarantor is the third party in the contract between lender and borrower. The lender agrees to pay the money to the loan applicant on the terms that if the applicant does not pay the principal plus interest amount on loan, the guarantor is liable to make the payment. This feature of loan has lured many people to take up a loan. It is important to note that the guarantor should be a person other than your spouse, children, and parents. In other words, the guarantor should not have the financial linkage for which he has taken the guarantee. The guarantor can be your friend or relative. The different banks use different criteria for gauging the eligibility of guarantor. Some banks also check the credit history of guarantor and whether he has fixed monthly income. Guarantor property is not mortgaged for availing a loan. Many banks also give bad credit personal loans no guarantor at a relatively high rate of interest.
Restricting the liability of guarantor
In the event of nonpayment of interest amount, the guarantor will become personally liable to pay off the debt. This will also ruin the relation of the person with guarantor. Hence, it is advisable to take a crucial decision of becoming guarantor with due diligence. If your friend is persuading you to become a guarantor for his loan then you must insist on ‘guarantee with limited liability, agreement. In many cases personal loan with a guarantee, the guarantor ends up paying the debt of his entire default in payment. For example, if the borrower has taken a loan to purchase a car, inability to pay the interest rate to the bank will also cause guarantor to pay his credit card bills. You can save yourself from this situation by having an agreement with the borrower. Make sure that the contract between you and the borrower is in writing and is signed by both the parties to make it enforceable at law. Though guarantor loan is easily available and has low-interest rate but choosing the person who provides guarantee becomes hard.