It is always a very noble gesture when a friend helps us during our direst times. But the set back just sets in when the help required is in terms of finance. The eventuality of losing out on your close friend or acquaintances is quite a scary one which most of us do not want to experience.
Speaking in terms of financial lines, when you have a friend who is a guarantor, things can get a little tipsy if your bank, you and the guarantor are not kept well informed.
For example let us consider the case of Sunil. is a 30 year old individual who has the dream of buying a beautiful house by the shore. He managed to collect all the required documents, attached his salary certificate along with all details relating to his financial stability. But his confidence was eroded when the bank informed their inability to accept his loan application due to his bad credit history. This shocked Sunil even more since he always has been prompt when it came to paying his EMIs on the two credit cards that he holds.
Sunil maintained all the records of his credit card bills and receipts of his repayments that he made for the same which did not show any flaw. When he showed the same to the bank, the bank advised him to approach a Credit Information Company (CIC) wherein he can get complete details about his credit history which is mentioned in the Credit Information Report (CIR).
With the help of this CIR, many banks and lending institutions evaluate the borrower’s credibility and their repayment capacity to consider their loan application. When Sunil approached the bank with this information, the bank stated that the flaw had nothing to do with his credit card repayment history but in fact it was the default on the EMIs of a home loan of Sunil’s friend of which Sunil was a guarantor. Sunil’s friend Ram had taken a home loan couple of years back for which Sunil was guarantor. Since Ram defaulted on his EMI payments, Sunil was also being considered since he was the guarantor, therefore making him legally responsible to repay the loan if he needs to avail any kind of loan for himself in the near future for any purpose.
The moral of the story is to understand that if anyone is made the guarantor of any type of loan, the guarantor becomes equally responsible for repaying the loan. The underlying meaning of a guarantor is to pledge on behalf of the borrower to repay the loan on behalf of the main lender if the lender defaults on his repayments due to any reason. Also, the guarantor’s credit score and credit history is also analyzed by banks before they move ahead to sanction any form of credit.
Therefore, if there is an absolute requirement for a guarantor, make sure that you sign up for a guarantor who has a higher credit score so that it will not affect the guarantor’s financial requirement of signing up for a loan in future. If you are a guarantor, it is of primary importance that you make sure that the borrower is paying his EMIs on time on a monthly basis.
However, if you as a guarantor are facing the brunt of helping a friend, all is not lost yet. All you need to ensure is that the borrower is able to repay his dues and is back on track with his EMI payments. Doing so, you will ensure that you are not only building your friend’s credit history but also ensuring your credit score is well on a positive side. With prudent financial decision making you can ensure all your financial goals to be achieved without any hassles.