Loan Guarantor: Before becoming someone's loan guarantor, know what are the rules...

If your friend or close friend takes a loan and asks you to become the guarantor of that loan, then you become its guarantor without thinking anything. You feel that your relationship might get spoiled by not speaking out. But becoming someone's loan guarantor is not a trivial matter because, in the case of a loan, the loan guarantor also has many responsibilities along with the loan taker. If the loan borrower does not repay the loan amount, it also affects the loan guarantor. Know here what are the responsibilities of a loan guarantor.

First, know when a loan guarantor is needed
If the loan amount is very high and the default risk seems high.

The bank may not be able to get sufficient documents of the borrower or the personal credit score of the borrower is bad.

If the main borrower is old or has a risky profession.

If the policy requirement of the bank includes a loan guarantor.

What would be the responsibility of becoming a loan guarantor?
Even if in your view the responsibilities of the loan taker and the loan repayer are different, for the bank the loan guarantor also has the legal responsibility to repay the loan. This is why you are made to sign papers. In case of default, the bank first sends a notice to the borrower. If no reply is received, a notice is also sent to the guarantor. In such a situation, if the borrower is unable to repay the loan, then you will have to take the responsibility of repaying that loan.

If you think that after becoming a loan guarantor, you can easily step back from this responsibility, then you should know that you have limited options to step back. You can withdraw only when you get the approval of the bank for this. A bank or any other financial institution will approve you only when the person taking the loan gives you a satisfactory option to repay the loan.

Affects your CIBIL score
Another disadvantage of becoming a loan guarantor is that if the borrower is unable to repay his loan, his loan amount will appear as a liability in your credit report. This will also harm your CIBIL score. The first disadvantage of a bad CIBIL score is that if you ever want to take a loan yourself, you may face problems. Apart from this, it is also possible that you may not be able to become someone's guarantor again soon.

What should be done?
Before taking responsibility of the loan, it should be understood to what extent the person is capable of repaying the loan. Apart from this, you should prepare the person taking the loan to buy a loan protection policy from the insurance company. In such a situation, in case of any untoward incident, it will be the responsibility of the insurance company to repay the loan.

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