You can easily apply for a personal loan. When you apply for an unsecured loan, there is no requirement of presenting any collateral. Moreover, a number of banks and lending institutions are offering pre-approved loans to those who have great credit scores.
Still, in some cases, loan approval can take time unless you apply with a guarantor to vouch for your repayment capacity. Let’s help you understand how you can apply for a personal loan with a guarantor.
What is a Personal Loan Guarantor?
When you apply for a personal loan, a guarantor refers to an individual who delivers the necessary credibility to the borrower’s application. A guarantor acts as a reliable witness while providing the assurance of the borrower’s authenticity to the lender.
This person is responsible for ensuring a guarantee on the borrower’s behalf when it comes to repaying the loan amount, along with the interest, in case the borrower defaults. In this case, the guarantor is legally bound to repay the entire loan amount.
Types of Personal Loan Guarantors
There are different types of guarantors that you need to understand to ensure loan approval.
1. Guarantors As Certifiers
Some guarantors tend to pledge their assets in the form of collateral. In addition to this, some personal loan guarantor requirements specify helping borrowers get relevant jobs or even secure important documents. In such a case, the guarantor can certify that they are aware of the borrower personally.
2. Corporate Guarantors
In some cases, an organization might serve as the guarantor for a personal loan taken out by an individual or any other business. Corporate guarantors offer financial support and credibility to the loan application.
3. Limited and Unlimited Guarantors
A limited guarantor is asked to guarantee a loan only for a fixed period of time. After this time period, the borrower will take up the responsibility of the remaining payments. The borrower will alone go through the consequences of defaulting a loan.
On the other hand, an unlimited guarantor might have to be present until the end of the loan tenure.
Why is a Guarantor Important for Personal Loans?
Some benefits of choosing a guarantor for your personal loan are:
1. Improved Credibility: As a borrower, if you have a poor credit history, you can improve your credibility with a personal loan with a guarantor. When timely payments are made, this can improve your credit score.
2. Reduced Interest Rates: Personal loans with guarantors are usually available with reduced interest rates. This is because the presence of a guarantor delivers additional security to the lender.
3. Better Chances of Loan Approval: When you apply for a personal loan with a guarantor, you have a higher chance of loan approval. This is true for borrowers with a poor credit history or high debt levels.
Eligibility Criteria for Being a Guarantor
- Age: Must be at least 18 years old. Might depend on the lender’s policy.
- Income Stability: Must have a stable source of income to repay the loan amount.
- Good Credit Score: It is essential to possess a strong credit history to ensure credibility.
- Good Relationship with the Borrower: Ideally, the guarantor should be a close family relative.
- Employment Status: Preferably, the guarantor should be self-employed or a salaried individual with a decent financial background.
How to Choose the Right Guarantor for Your Personal Loan
It is important to choose the right guarantor for your personal loans. This is because their credibility will affect your loan approval. Here are some pointers to consider:
1. Strong Credibility: You should choose a guarantor with a good credit score. This will improve your chances of loan approval.
2. Income Stability: The guarantor should possess a stable source of income. This offers lenders the assurance that the guarantor will be responsible in case you default.
3. Low DTI Ratio: A guarantor having minimal financial liabilities is preferred. This reassures the lenders that he/she will cover the loan payments.
4. Willingness: To top it all, the guarantor should be willing to guarantee on your loan application. The person should also be aware of the potential risks before signing the agreement.
What Happens If the Borrower Defaults on the Loan?
There can be serious consequences if the borrower defaults on the loan. It can have legal and financial consequences for both the lender and the guarantor.
- Negative Impact on the Credit: If the borrower is not able to repay the amount, the credit score will decline considerably. This makes future borrowing difficult.
- Penalties: Lenders will impose penalties and even late fees. This increases the total loan amount.
- Guarantor’s Liability: If you have chosen a guarantor, he/she will be responsible for repaying the loan amount. Eventually, it might affect their finances.
Conclusion
A personal loan guarantor plays an important role in assisting borrowers in getting access to a loan, especially when they do not fulfill the eligibility criteria. It is important to look into personal loan guarantor requirements and personal loan guarantor risks before signing any agreement. You can be assured of minimum risks while applying for a personal loan by choosing a reliable lender like Stashfin for instant personal loans.
Frequently Asked Questions
Can I Apply for a Personal Loan Without a Guarantor?
Yes. Several lenders offer a personal loan without a guarantor. Still, loan approval will depend on the income, credit score, and repayment capacity.
Is it Possible to Have More Than One Guarantor?
Some lenders might allow multiple guarantors to improve the chances of loan approval. However, it will depend on the loan terms and the lender’s policies.
Can a Guarantor Be Changed After the Loan Is Approved?
Usually, changing a guarantor after the approval of the personal loan will be difficult. Still, some lenders allow this under specific conditions.
How to Remove a Guarantor from a Loan Agreement?
You can remove a guarantor by refinancing a loan. You can also consider fully repaying the loan amount or getting lender approval for some substitution.