A guarantor is a person who takes the legal responsibility of the loan recipient, if they fail to repay the amount. Guarantors are usually required when the loan recipient has minimum or no credit record, or has been a defaulter in the past.
It can be difficult to find a person who’ll be willing to be your guarantor. This is mainly because of the financial and legal hassles involved in it. Nobody would like to risk themselves for a potential defaulter. And why should they? With the banks tightening its noose on the loan defaulters, it has become a risky involvement for any sane person to present himself as a guarantor.
Let’s assume there’s a person who has a Home Loan requirement for the first time. Is it mandatory for him to present a guarantor? Perhaps, no.
The below points will guide you through the Home Loan procedure without the help of a guarantor.
Opt for a Home Loan Insurance Policy
It is an insurance plan that specifically covers your outstanding loan liability. It’s closely tied to your EMI payments and protects the bank’s investment when they give you a Home Loan. In case of an untoward incident like, death; this insurance will cover all your outstanding payments.
These are usually, single premium plans. The amount of its premium is calculated based on the tenure of your loan.
Keep a Close Tab on your Credit Scores
If you’re applying for a Home Loan in India without a guarantor, then a good credit rating is mandatory. With a good credit score, you’ll have more negotiation power while discussing the terms and conditions of the Home Loan with the bank.
Credit scores are derived using the record of your bill payment, debt, and the credit requested. The scores generated range from 300 to 900, and if your score less than 600, chances are, you may require a guarantor.
Difference Between Secured and Unsecured Loan
If you’ve come to realize that your credit score isn’t good, then you could probably look at some other alternatives like tangible assets. These are your house, vehicle, machineries, agricultural land and so on. Offering these assets as a collateral, gives the bank some assurance that it will get its money back, even if you default on the loan.
Unsecured loan, on the contrary, requires you to have an excellent credit score, or a high and steady income. There is no guarantee here that the bank will get its money back if you default because nothing is offered as a collateral. This is also the reason why an unsecured loan has a higher interest rate.
Keep an Account of your Debt
Managing and keeping your debt in check increases your credibility in front of the bank. There are a few simple measures which will help you in managing your debts:
- Clearing off the debts instead of juggling it between several accounts
- Keeping the credit account balances in check
- Keep only those accounts open for credit and finances that you actually operate.
Self-Introspect your Credibility
In order to get a Home Loan, you should be able to prove to your bank that you can make payments on time.
Here are some useful points to think over:
- Loan repayment depends on important factors such as income, repayment tenure, and interest rate.
- You must be completely honest about your source(s) of income to the lender, and prove that it has been steady for a long time.
- Consider the collateral you can provide, for instance, savings account, stocks, and tangible properties.
How Good are your Compensating Factors?
When you decide to go for a Home Loan, your compensating factors can prove to be your strength. It infact gives a proof to the lender that you can repay or compensate for the amount you lended from them. Here are some points you might like to consider:
- If you’re able to make a large down payment to the property you buy (at least 10% or more), it sends off a good impression to the lender.
- Your previous credit history should speak of your ability to repay the amount.
- It’s good to possess a saving mentality and a conservative attitude while using credit.
- Prove that you have substantial cash reserve and immovable assets with you.
- A good and qualified background, with a potential for increased income, will convince the lender to provide you with a loan.
Honesty is Definitely the Best Policy Here!
It is very important to be completely transparent with your bank. Maintaining absolute honesty and convincing them about your urgency will help you fetch a Home Loan. But, using false means to claim loan, such as using fake ID’s and documents can land you in prison.
Taking a Home Loan without a guarantor isn’t a headache anymore. If you have your finances and credibility intact, most banks would be willing to give you a Home Loan.