Banking has become one of the basic utilities or functions supporting our living in the society today.From across the counter banking, we are graduating to online and internet banking. Not many people however know how the banking sector works and their knowledge about loans is limited. Most people do not know what it means to have an impeccable credit history and rating coupled with credit worthiness.
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Let’s delve into more helpful guidelines.
Let us now tell you in very simple language as to what credit worthiness means. Credit worthiness of an individual is a way of ascertaining his net worth or estimating how much of loan he is worth being given by the bank. His net worth is arrived at with the help of his age, his income, liabilities as well as assets and savings etc.Along with these details the banks also look at the credit history of the individual. It helps to always maintain a good record and impeccable performance in terms of making repayments. Banks may not be interested in giving loans and having any financial exposure with those individuals who are known to default on payments and have a poor record or history.Even if the banks are ready to consider giving a loan, they might charge a higher interest or ask for security as well as a guarantor.
One should always make all payments of installments in time and ensure the record is clean. When one wants to borrow some more funds from the bank, such clean record helps. The banks look forward to servicing such customers who are very prompt and maintain a clean account.
Loans usually call for the signature of a guarantor along with the applicant who will stand guarantee to the loan liability on behalf of the applicant.This means that in the event of defaulting on repayment by the applicant, the bank can approach the guarantor to make good the outstanding loan payments.
When you borrow from the bank in case of home loan or any other loan backed by an asset there is little cause for worry. If the borrower is unable to make repayments of the loan, the bank has the first lien and can auction the property to recover the outstanding and foreclose the loan with no recourse to the guarantor. If the loan is a soft loan like education loan etc, there may not be any asset involved wherein the bank is able to use to recover outstanding incase of failure from the borrower to clear the loan. Guarantor would then have to step in to clear the outstanding when the borrower defaults and the bank has no other recourse to recovery.
In case you are going to sign up as a guarantor for some one else, then you should know your position and the liabilities that you would be taking on before agreeing to being a guarantor.Unless and until you are convinced of the genuine intention and ability of the borrower to repay the loan, you should not expose yourself to such huge liability. In case of your siblings, relatives or close friends it would be alright to sign up as a guarantor for you know the person and are in a position to influence the borrower.