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What is a Guarantee For Repayment of a Loan?
A Guarantee For Repayment of a Loan is a loan that a third party guarantees—or assumes the debt obligation for—in the event that the borrower defaults. Sometimes, a guaranteed loan is guaranteed by a government agency, which will purchase the debt from the lending financial institution and take on responsibility for the loan. A Guarantee For Repayment of Loan agreement may be made when a borrower is an unattractive candidate for a regular bank loan. It is a way for people who need financial assistance to secure funds when they otherwise may not qualify to acquire them. And the guarantee means that the lending institution does not incur excessive risk in issuing these loans.
Need for Guarantee For Repayment of a Loan
A Guarantee For Repayment of a Loan is a legally binding commitment to pay a debt in the event the borrower defaults. This most often occurs between family members, where the borrower can’t obtain a loan because of a lack of income or down payment, or due to a poor credit rating. A guarantor also may be used to secure a better interest rate or other more favorable loan terms.
FAQs for Guarantee For Repayment of a Loan
Q1. What are the four different types of guarantees For Repayment of Loan?
Ans – Types of Guarantees –
- Bid/Tender Guarantee. Issued in support of an exporter’s bid to supply goods or services and, if successful, ensures compensation in the event that the contract is not signed.
- Performance Guarantee.
- Advance Payment Guarantee.
- Warranty Guarantee.
- Retention Guarantee
Q2. Is Bank Guarantee refundable?
Ans – As soon as the applicant pays his/her dues to the seller within the stipulated time frame, the bank guarantee becomes null and void.
Q3. What is the minimum period of bank guarantee?
Ans – The consequence of incorporating a minimum claim period of 12 months in the bank guarantee is that the liability of the issuing bank remains open during such a claim period.
Q4. What is the rule of Guarantee For Repayment of Loan?
Ans – It has been observed that a bank guarantee is a contract between the beneficiary and the bank. When the beneficiary invokes the bank guarantee and a letter invoking the same is sent in terms of the bank guarantee, it is obligatory for the bank to make payment to the beneficiary.
Q5. What percentage is the Guarantee For Repayment of Loan?
Ans – Based on the type of the BG, fees are generally charged on a quarterly basis on the BG value of 0.75% or 0.50% during the BG validity period. Apart from this, the bank may also charge the application processing fee, documentation fee, and handling fee.
GUARANTEE FOR REPAYMENT OF LOAN SAMPLE FORMAT
To
,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,
Dear Sirs,
I, the undersigned, in my capacity as managing proprietor, duly authorized, of the registered partnership firm of _____________________________ of ________________________ Road ____________________ (or simply, I, the undersigned, resident, of _________), hereby undertake to pay you a sum of Rupees _________________ which you have this day advanced under a pronote, dated _____________ (or for the goods supplied by you at my request) to ,………..,,,,,,,,,,,,,,. of etc., I also undertake to pay all interest due on the above sum from today till final payment at the rate of _________ per cent per annum.
This guarantee shall be enforceable by you in the event of non-payment of the debt (or price of goods) by BB. within a period of two weeks from today and I shall be liable to pay the aforesaid amount plus interest within _________ days after notice in writing has been served upon me (or my firm) at the address herein given. This guarantee shall not be affected by your granting any time, your forbearance to enforce payment or any other indulgence granted by you to ………………….. or such consideration to which the said BB. may in law be entitled to.
Dated at _________ this the _________ day of _________, 20 _________
Yours faithfully,
Sd. ……………….aa
(Give full address and description of aa.)
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