If the loan taker makes a mistake, the guarantor will also have to bear the brunt! Responsibility does not end with just signing.

If you are going to become someone's loan guarantor, then first understand what are the responsibilities of the guarantor. If the borrower defaults in repaying the loan, what effect does it have on the guarantor. After this, you decide whether you want to become someone's guarantor or not, and even if you do, what precautions need to be taken.

If your CIBIL score is good and your income is also good, then banks easily give you loans. But in some situations, a guarantor is needed while taking a loan. Usually people ask a relative, friend or close person to become a guarantor. Due to relations, the other person is also unable to say no and becomes a guarantor and signs the papers.

But if you think that your responsibility will end after signing, then it is not so at all. Becoming a guarantor means that you have guaranteed the borrower that he will repay the entire loan to the bank. In such a situation, if the person taking the loan defaults, then the guarantor may also have to bear the brunt of it. Here, know what loss will the guarantor suffer if the loan taker is unable to repay the money.

When does the bank ask for a guarantor?

The bank asks for a guarantor when the loan amount is very high and the bank is afraid whether the money will be returned or not.

The loan taker's documents are not complete

The loan taker's previous loan repayment record (credit score) is bad.

The loan taker is old or his work is such that the income is not certain (risky).

Sometimes the bank's rule is that a guarantor is needed.

What is the responsibility of becoming a guarantor?

You may think that repaying the loan is only the loan taker's job, but you are equally responsible for the bank. That is why you are made to sign on the papers.

If the loan taker does not repay the money, the bank first sends him a notice. If there is no response, it sends a notice to you (the guarantor) as well.

If the loan taker is unable to repay the money, you may have to repay the loan.

Bad effect on CIBIL score

Another disadvantage of becoming a guarantor is that if the loan taker does not repay the money, that loan will also appear in your credit report. This spoils your CIBIL score. Due to a bad CIBIL score, if you ever want to take a loan yourself, it will be difficult. And it is possible that you will not be able to become a guarantor for someone else soon.

Can a guarantor back out of his responsibility?

If you think that after becoming a guarantor you can easily back out, then it is not so. There are very few ways to back out. You can back out only when the bank agrees. The bank will agree only when the loan taker makes some other solid arrangement to repay the loan.

What should be done?

Before giving guarantee for someone, understand well whether that person will be able to repay the loan or not.

Also, ask the loan taker to get the loan insured (loan protection policy).

By doing this, if something unfortunate happens to the loan taker (like death or job loss), the insurance company will repay the loan, and you will be saved.