Becoming a loan guarantor? Things you should know before you become one

It is a little difficult to say no to your close relative or friend when they ask you to be their loan guarantor. Loan guarantors are not co-borrowers but guarantors who formally assure the bank or lending institutions that the borrower will repay the loan amount on time, abiding by the rules. The credit worthiness of a person allows one to be a loan guarantor, but it does not mean that the borrower's creditworthiness is being questioned, often it is a formality that needs to be followed as a part of Credit Risk Management in Banks, in case of a massive amount. It might be a risk at times as you can never be too sure of somebody's credit behaviour which is why always think before you say a yes and ensure nothing is at stake.

Below are a few questions that we will answer to help you decide if you want to be somebody's loan guarantor or not:

When should you say a Yes?

As we said, becoming somebody's loan guarantor depends on one's own discretion. One thing you should never forget to consider is the borrower's financial ability and capacity to repay the loan.

When should you say a No?

If you come to understand that the bank wants you to be a guarantor because they do not trust the borrower's financial capabilities, then take a closer look at the borrower's papers and credit history to avoid any financial distress on you.

Will your credit score be affected?

Credit Score plays a very crucial role when it comes to any kind of financial activity, even when you become a loan guarantor. While the borrower is expected to have the required credit score needed for personal loan, as a guarantor, your credit score is also at stake. Your credit score will be affected when there is a delay in paying the EMIs or any kind of default. The ratio in which your score is affected is influenced by the latest credit scoring model followed by the respective credit bureau. Before becoming a guarantor make sure your credit score is strong enough to take a hit if there is any irregularity in the repayment of the loan by the borrower.

Will your eligibility for loan get affected?

Becoming loan guarantor means you've increased your liability too. The lenders will then limit your loan amount or not give you a loan at all, so if you are sure that you wouldn't need to take a loan soon then say a yes to becoming a guarantor.

What will be the tenure of the loan?

Becoming a loan guarantor means you are tied to a loan till the time it is fully paid back, which also means it will be a liability. Make sure the loan tenure is not too long to avoid being deprived of any financial assistance you may need in the future.

What are the legal actions that can be taken by the bank against you?

You may have to pay the amount if the borrower goes absconding irrespective of the fact that you are not the co-borrower there will be legal actions taken against you too. It is mandatory to read and check every document that you sign while you become the guarantor.

Once you become a loan guarantor, it is not easy to withdraw. Keeping that in mind we have answered most of the questions that might come in your mind while agreeing to become the loan guarantor, making sure you take a decision after understanding every term and condition and it does not affect your finances negatively

Looking For A Loan To Buy Your Dream Car-Factors To Foresee Before You Apply For Loan

“We don't pray for the love we just pray for cars”

Buying a car with the latest features or choosing a swanky one can at times be heavy on our pockets despite having it all planned. Car loans are like the catalyst for buying our dream car. However, not everyone spends enough time researching and comparing car financing schemes.  If you are planning to buy a car that you have wished for then we have a list of things that should be on your checklist before you hop on to a decision or before you apply for a car loan, making things uncomplicated.

Choose your car wisely:

When you plan to take a car loan, make sure you choose your car wisely. A car that suits all your needs and requirements should be the deciding factors of the choice you make. Research about car category (Sedan/SUV/Hatchback) and fuel type (Petrol/Diesel/CNG). Choose the one which suits your budget as it is a big expenditure that might be affecting your finances for the upcoming months.

Credit History and Credit Score:

Your credit history and credit score are the deciding factors for your eligibility to get a car loan. Before you apply for a car loan, it is mandatory to make sure that one has a good credit history and fulfills all eligibility criteria. Banks approve or reject loan applications based on your entire financial standing, starting from your monthly salary to your ability to repay your debts to your credit activities.

So, the foremost step is to visit the website of an RBI-approved credit bureau in India like CRIF and check your credit-worthiness by downloading a free credit report. A higher score means a better chance of loan approval and lower will be the interest rates. One will have a greater probability of approval of the loan if he/she has a score above 700.

The Rate of Interest:

Different banks offer a different rate of interest and it is important to analyze and do a little research to get the best deal. Since the rate of interest can make a large difference in the final cost of the car you want to buy, make sure to choose a deal wisely and not just any prepackaged loan deal.

Down Payment:

Usually, 15% to 20% of the loan amount is the down payment amount that one must pay. Down payment works just like margin money for our loan needs. The higher the down payment is, the lower is the quantum of EMI one must pay every month.

Processing Fee:

Banks charge a minimum loan processing fee for all car loan requests. However, the final calculation of loan processing fee differs from bank to bank. While some banks have a flat loan processing fee, others fix the loan processing fee depending on the amount of loan and a fixed percentage is used to calculate the fee. While comparing the loan processing fee, it is imperative to check other charges like late payment charges in case of a missed EMI of various banks.

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Foreclosure Charges:

Banks charge an extra amount for prepayment of the car loan before the end of the loan tenure. Suppose you want to pay off your car loan in one go, you may have to shell out around 2 percent to 5 percent of the outstanding balance as foreclosure charges. Make a thorough check with various banks about the charges for foreclosing your car loan.

Package Deals:

Car dealers often have tie-ups with various banks offering pre-approved car loans at the car showroom. While pre-approved loans may look very alluring but are often costlier than independent car loans.

Bundled Insurance:

Banks offer clients the option of free insurance as an incentive to taking a car loan. As a borrower, you can also request the bank to offer you a bundled insurance plan to help you be stress-free about it in times of despair.

Buying a car and getting a car loan can be a little grueling but if you do it the right way it may not be as tough as it seems to be. Make sure you get yourself a credit check regularly with CRIF to ensure that you are eligible to apply for a car loan. CRIF provides you a free credit score, once every year.

How to Manage Your Finances And Card Spends During This Festive Season?

‘Tis the season’ is the phrase you’ll generally get to hear in the west when people start anticipating Christmas and it’s really close. In India, ‘Tis the season’ can be chanted all year long with unending festivals for each season. While this is an exciting opportunity for those who never want to stop celebrating life; for the slightly cautious ones, it is a threat to their savings and consequently their credit report. We share some tried and tested tips below which will limit your card swipes while also retaining your credit score.

Set a psychological cap

You must have noticed that when you carry hard cash in your wallet and spend out of it, you are cautious every time money goes out. This is because the transfer of money is visible and you can see your wallet thinning with every outlay. This subconsciously warns your mind to spend less the next time, when you know there’s only a little left. The same is not the case with Credit or Debit card where you tend to compare your spending with your total account balance. The ratio of which is obviously higher than the money in your wallet. You do not realize how much you have lost until the due date comes and you are reminded of your EMIs. What we learn from this human behavior is that it’s in the best interest of your bank balance to go out shopping with limited cash. Or in this age of digital money, you can download an e-wallet on your phone, transfer a small amount to it and spend accordingly.

Define your budget, preferably in advance

This point is in direct co-relation with the one above. When you set a budget, you can spend with the available amount in mind. If you know you have to spend more in the next season, start cutting down your expenses beforehand in order to balance the budget. When it’s festival time, set a budget according to your spending capacity and priority to avoid financial burden in the future. Make it a point to limit your spending within the peripheries of the set amount. The next step of setting a budget is to pre-define it for all major festivals in advance. For example, if it’s October already, and according to your savings, you still have a spending capacity of Rs. 1 lakh for the rest of the year, you can set a budget of spending 10,000/- for Diwali shopping; 60,000/- for Diwali Gifts & Decorations and 30,000/- for miscellaneous with a margin of say 5% i.e. 5000/- more or less. In this way, the fear of overspending or vague expenditures is eliminated and your budget is hugely controlled.

Keep caution while borrowing money

If the festive season is overwhelming and you JUST have to buy that new car on dhanteras, then go ahead with the loan. But always be mindful of your repaying capabilities and do not burden yourself beyond what you can bear. Your lenders are in constant touch with the credit bureaus of India and keep them updated about your every financial move. As such, be conscious of the effects of a loan on your credit score.

Stay updated about the best deals

During all major festivals, there is an enormous SALE going on, especially in the online world. Avail full benefit of this opportunity by investing your time on selecting your products, months or days in advance, and wait till the prices drop down. Push your TV, Phone, Fridge and Oven purchases till the sale as there is a huge discount on electronics and home appliances where you can save maximum money. Many times, when you are ignorant about the dates of an upcoming online sale, you end up buying the same thing at a higher price. It’s only days later that you realize that the same product is now on SALE for a dirt-cheap price. As sordid as it may sound, It’s rather penny-wise to keep a track of these minute details. It could save you thousands of bucks, let alone the tremendous mental satisfaction of having spent a lot less than otherwise!

Believe in the power of Personalized Gifts

As if your personal expenses and the expenses of your family were not enough, you are also expected to gift your friends, and extended family during the festive season. These are times when your budget goes haywire. The best thing to do when you are tight on money is to create personalized gifts. Personalized gifts such as handmade paintings, greetings, sweets etc. are not just high on emotional value but are also easy on the pocket. People actually appreciate if you give them your time rather than your money.

A consideration of all the above points will not just make your festival better but will also show positive changes in your credit report. Visit our website and treat yourself with a free credit score to check your credit health before the festivals begin!