A guarantor is a person who guarantees for someone else debts or loans. This person will be responsible for the debt or loan took by the borrower, if in case the borrower fails to repay.
A business or a person with a poor credit history often needs a guarantor to get a loan. Poor credit history means, the borrower has very weak repay status of debts.
In bank loan procedures the guarantor will be the co applicant thus he/she will be pledged to take the full responsibility of the money borrowed. They will sign the credit agreement or loan application form in order to keep proof of guarantee for loan.
Criterion for a Guarantor (Indian context)
- Be co applicant for loan or credit
- Be salaried, or should run a business with proper tax files
- Be Indian citizen
- Possess any asset which can compensate the loan
- Be blood relatives, family, friends or even colleagues.
What happens if borrower fails to pay?
It might happen because unexpected financial hardship might push everyone into this situation. During this time bank will give a notice period to repay the loan. If the borrower fails then they move to co applicant or the guarantor. Since they had signed the agreement for loan or credit, now this will be their responsibility to compensate the loan.
Can guarantor withdraw from the role?
No, they can’t. They are fully responsible for the credited money. Until unless the borrower repay, they are not allowed to discard or withdraw from the role. But in rare occasions the bank might allow the guarantor to swap with another person who can take full responsibility. But it depends on the internal policies of the bank.
