Obligations of being a loan guarantor

By | March 29, 2011

Sunil is a 25 year old executive, living in his parents own house in Bangalore. He has been saving from the last 7 years and is looking forward to settling down in life soon. His brother-in-law, Shekhar, gave up his regular job and took an initiative to start up his own line of business, preferably a tuna meat packaging line with his ex co-worker. He, as others, applied for a loan in the bank, for which the bank asked him for a loan guarantor. Shekhar approached Sunil, and being his brother-in-law, agreed. But Sunil now, is actually concerned about is, what are the consequences of this agreement? What can be legal outcome if he becomes a loan guarantor?

Well, there are a lot of financial implications because of his decision, since any delays in repayment, will eventually, make Sunil responsible for the loan amount. It will reduce his chances of borrowing any personal finances for himself. Considering the fact that if Shekhar does not have the sufficient assests to repay the loan amount, Sunil will have to pay them, which can crunch his income enormously.

But, there is a way in which Sunil can protect himself against such defaults of Shekhar and avert him from a bad credit history. He can avail a loan protection plan that provides him the comfort that if in any case, due to disability, demise or business loss of Shekhar, the loan repayment will be taken care off.

In this way, he can help Shekhar and not let any external loan affect his savings or his need for borrowing a personal loan. Sunil can also consider other options like calling off his role as a guarantor if Shekhar finds another guarantor in his place. Sunil can even suggest to Shekhar to have more than one loan guarantor so that if in any case the repayment is not done, the burden can be shared by more than one person so that no one is affected drastically.

So, by considering the above steps and by analyzing the situation at hand, Sunil can handle his brother-in-law’s request with a prepared mind.

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