Bank Loan Risk: To get a bank loan, your CIBIL score must be good. Along with that, if your income is regular, the bank will easily give you a loan. But sometimes the bank asks the borrower for a guarantor.
In such a case, your relative, friend or acquaintance requests you to become a guarantor and you agree due to the relationship. But if you do not understand some things while becoming a guarantor, you may face a big financial problem later.
What is a guarantor?
A guarantor is a person who takes the responsibility of the loan of the borrower. That is, if the borrower does not pay the installments, the bank can recover from the guarantor.
According to Section 128 of the Indian Contract Act, 1872, the guarantor’s responsibility is the same as the borrower. This means that if the borrower does not repay the amount borrowed, the bank recovers that amount from the guarantor. This can also damage the guarantor’s credit score. Due to this, he will have difficulty in getting loans himself in the future.
Relationship with the borrower can deteriorate
As soon as the loan defaults, the bank will send you a legal notice. This may force you to go to court, which can waste both your time and money. All these things are likely to permanently damage your relationship with the person you helped as a guarantor.
Interest will also have to be paid along with the principal
While recovering the loan as a guarantor, the bank will charge you the principal amount of the loan along with interest, late fees and other penalties. This amount can be so large that it can ruin all your financial calculations or even wipe out all your savings.
How can you remove your name once you have become a guarantor?
- Removing your name after becoming a guarantor is not easy. There are only two situations in which you can be removed.
- If the borrower is giving someone else as a guarantor in your place, the bank may be willing to remove your name.
- According to some experts, in special cases, the process of removing the name can also be done by taking legal advice. But this process is very difficult.
What to check before becoming a guarantor?
- Check carefully how much is the loan amount of the person for whom you are going to be a guarantor.
- If you already have a loan, then you should avoid becoming a guarantor.
- Understand the interest rate on the loan.
The most important thing is to check carefully whether the borrower has the ability to repay the money. Otherwise, if he does not repay the loan, the entire responsibility may fall on you.
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