Think carefully before becoming a loan guarantor for friends or relatives; otherwise, you could land in serious trouble later..

Do not make a hasty decision to become a loan guarantor for a friend or relative. Deciding without proper consideration can land you in trouble later. Experts point out that a loan guarantor bears specific responsibilities. Many people mistakenly believe that becoming a guarantor merely involves signing a document; however, this is not the case. Let us understand this in detail.

**A guarantor can face trouble if the loan goes into default**

If the borrower fails to repay the money borrowed from the bank, the responsibility for repayment falls on the guarantor. This implies that becoming a guarantor poses a risk to the individual's financial health. Furthermore, a failure to repay the loan negatively impacts the guarantor's credit profile.

**Banks seek full security for their funds before granting a loan**

Experts state that a bank's primary objective in requiring a guarantor is to safeguard its funds. Before disbursing a loan, banks take precautionary measures to prevent financial loss. Consequently, if the loan is not repaid, the bank first seeks an explanation from the borrower. If the borrower cannot be contacted, the bank then reaches out to the guarantor.

**Banks issue notices to the guarantor in the event of a loan default**

When loan repayments are missed, the bank first sends a notice to the customer. If three consecutive EMIs remain unpaid, the bank sends a registered notice to the customer. If four consecutive EMIs are missed, the bank sends notices to both the customer and the guarantor. Experts note that banks have the authority to initiate legal proceedings against both the borrower and the guarantor simultaneously.

**Payment defaults also impact the guarantor's credit profile**

If loan repayments cease after one has become a guarantor for a friend or relative, it adversely affects the guarantor's credit score. This means the guarantor may face difficulties in obtaining a loan for themselves in the future. Experts advise that you should carefully consider the implications before becoming a loan guarantor.

Become a guarantor only if you are fully aware of the individual's financial situation.

Experts suggest that you should agree to be a loan guarantor only if the borrower is someone very close to you—such as a spouse, brother, or sister. This is because you are likely to be familiar with their financial standing and their ability to repay the loan. However, experts recommend avoiding acting as a guarantor for long-term loans.

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