What is Third Party Gurantee in Education Loan and Why is it Required?
Banks demand a guarantee from the borrower which will ensure their loan repayment. A guaranteed loan is one where a third party guarantees debt obligation in case the borrower fails to repay. A loan guarantor is required for loan amount above 7.5 lakhs.
Eligibility for a third-party guarantor in Education loan:
In case the income level of a co-signer is not sufficient for loan repayment guarantee, banks demand a third party guarantor along with a co-signer.
The guarantor must be a citizen of India above 18 years of age where the payment agreement agrees.
He/she is expected to have a good credit score and sufficient income to cover loan repayments.
A guarantor differs from a co-signer in the terms that a co-signer is the co-owner of the loan taken while a guarantor has no claim over the loan undertaken. It is sensible to ensure that the person offering the guarantee is a close relative/acquaintance of the borrower.
The guarantor guarantees the loan by putting their assets as collateral for cases when the borrower is unable to repay during the repayment period, he/she owes money to the bank. In addition to making payments during the repayment period, the guarantor is also entitled to make payments which have added up due to the borrower’s late payments. In cases when the guarantor as well is unable to repay the debts, the assets provided by him as collateral might be seized and sold to cover the costs remaining.
