Home Loan

Things to Know To Be a Guarantor

Poster for website article-17

One of the common blacklist reasons is being a guarantor. Even if it is not your fault, making a guarantee for a borrower in a loan agreement will cause you to be blacklisted by Bank Negara.

Thus, this article will tell you what it takes to be a guarantor, especially if you need to be one.

What is a Guarantor?

A guarantor is a person who assures a bank or lending organization that the person borrowing money will pay it back. This isn’t simply a verbal guarantee. Therefore, you are accountable for making sure the bank is paid by any means.

If the bank is unable to collect the money from the borrower, the guarantor is responsible for repaying the loan. The specifics of the guarantee document that a guarantor signs may vary from bank to bank, but the guarantor’s responsibilities stays the same.

What is a Guarantor’s responsibility?

A guarantor has to pay for the loan if the borrower do not pay. However, a guarantor is normally only accountable for the amount if the bank sends you a letter of demand.

Also, the bank has the right to demand repayment from you at the same time that the borrower is required to pay. Unless in specific circumstances of personal loans, there is currently no law requiring them to go for the borrower first. Even in such cases, the bank merely needs to establish that they could not reach the borrower.

Unfortunately, if the borrower defaults, this record will appear on your credit report, and the only way to remove it is to pay the debt.

Can you quit being a Guarantor?

Depending on the conditions of your guarantee agreement, you may or may not be able to quit being a guarantor. The majority of banks will not allow it unless the debt is fully paid off. The only other possibility is that the bank violated the agreement, which is not likely to happen.

However, if you are afraid that you will not be able to make the repayment, try to speak with the bank. Some banks may agree to certain terms.

Another option is to have the borrower sign a letter of indemnity for you. Ensuring that if a borrower defaults, you will be able to pursue legal action against them. In fact, obtaining a letter of indemnity at a later date should not be a problem. However, it is always best to obtain one before signing the guarantee agreement.

Tips for being a Guarantor

You must be willing to incur risks as a guarantor. Here are some tips if you are planning to be a guarantor.

  • Read the contract word for word, and if you don’t understand the legalese, hire a personal lawyer to explain your obligations under the guarantee agreement to you. If you don’t comprehend something, don’t sign it.
  • Consider if you’ll be able to repay the loan (and whether you’re willing to do so) if the borrower defaults.
  • Sign an indemnification agreement with the borrower to ensure that if they fail to make a payment, you will be able to pursue legal action against them.
  • Make sure the contract explains your responsibilities and the total amount you’ll be responsible for, including interest charges. Do not sign if something is missing.

Being a guarantor is accepting responsibility for someone else’s loan repayments if they default, so do not agree to it lightly. Unfortunately, once you’ve signed a guarantee agreement, there’s not much room to back out, so think twice before signing!

Follow LoanPanda on FaceBook & Tiktok to get more information.

Related Post

How Much Can I Borrow For A Home Loan In Malaysia 5

How Much Can I Borrow For A Home Loan In Malaysia

If you’re considering buying a house in Malaysia, one...

How to Calculate Debt Service Ratio

How to Calculate Debt Service Ratio

Many people nowadays decide to get a loan for...

Buying a home in Malaysia? Know your eligibility for a home loan

Buying a home in Malaysia? Know your eligibility for a home loan

  Becoming a new property owner comes with many...

X