What are the risks involved in being a loan guarantor?
Risks involved in being a loan guarantor

If any of your family members, friends or colleagues, want you to be a guarantor while they are applying for a loan, in that case, you should be aware of the risks involved while signing the agreement.

A guarantor is a person who will be liable to pay the loan in case the loan applicant is unable to pay. He will be equally liable to pay the loan if the applicant fails.

Bank asks for a guarantor only when the applicant does not have a stable income, or the financial history is not good, or the applicant relocates very frequently, or as per the bank’s policy, the guarantor’s name is mandatory. Banks also require a guarantor in case of loans with higher amounts, like education, home or vehicle loan.

Bare Act PDFs

If you are being a guarantor, the bank will make you sign an agreement stating that if the loan applicant is unable to pay his loan, the guarantor will be liable. After signing the agreement, the bank has the right to take legal action against the guarantor if they are unable to pay. The bank can even seize the guarantor’s assets.

The burden will be equal without even enjoying the funds received from the loan.

Further, if the guarantor wants a loan for himself, he won’t be allowed because of his status as a guarantor. The guarantor’s borrowing limit is reduced because the loan by his friend/relative also gets added to his credit report. His credit score will also be damaged if there is any default or delayed payments by the loan applicant. This will hamper him in future while applying for any loan for himself.

Ankita Trivedi
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