Responsibilities of a guarantor in a personal loan!

By | February 18, 2013

Friends, relatives and colleagues often sign as guarantors for personal loans for applicants in order to help out in getting a loan on time. However many people do not completely realize the extent of responsibility that accompanies such an act. In fact the guarantor then becomes equally responsible for the repayment of the loan as the principal borrower. There can be serious implications for the guarantor in case the principal borrower defaults in timely repayment of a personal loan.

Repayment Compulsion: In case the principal borrower decides not repay a personal loan then it becomes the sole responsibility of the guarantor to make good the outstanding amount failing which the bank has all rights to initiate criminal proceedings against him. Since the personal loan is unsecured the guarantor becomes the first alternative for the bank to recover the outstanding amount. The monthly earnings of the guarantor can be attached by the court to effect recovery of the personal loan of the borrower.

Attachment and Sale of Assets: The assets of the guarantor can be attached or sold by the bank after a suitable decree from a civil court to recover the outstanding amount of the personal loan. Thus one needs to carefully owe one’s own repayment capacity for the personal loan for which he is signing as guarantor. As a rule the guarantor’s monthly income should permit him to undertake repayment of the personal loan for which he is providing the guarantee. This is the reason why most banks insist that the guarantor must have a better financial standing and credit rating than the principal borrower himself.

Negative Impact on Credit Rating: When one stands as a guarantor for a personal for somebody else and the loan is defaulted upon at a later stage along with the principal borrower the credit rating of the guarantor also plunges. The Credit Information Companies (CIC) such as CIBIL keeps a track of the guarantors along with the principal borrowers in cases of loan defaults. Even if the guarantor by himself has always been prompt in making credit repayments his ratings will be adversely affected when a loan for which he has signed as a guarantor gets defaulted upon.

Reduced Credit Eligibility: Currently all leading banks and other financial institutions are referring to the credit rating from CICs for determining the credit eligibility of applicants. Thus a persona who has signed as guarantor will have reduced credit eligibility as the amount that he has guaranteed is also reflected as outstanding loan against his name by the CIC in calculating his eligibility.

At times the banks sanction additional loans to the principal borrower without written consent from the guarantor which may mean further woes for the well meaning friend who wanted to help out. Thus the decision to be a guarantor in an unsecured personal loan has to be taken after carefully considering all the aspects involved and being sure about the repayment capacity and intentions of the borrower.

All information including news articles and blogs published on this website are strictly for general information purpose only. BankBazaar does not provide any warranty about the authenticity and accuracy of such information. BankBazaar will not be held responsible for any loss and/or damage that arises or is incurred by use of such information. Rates and offers as may be applicable at the time of applying for a product may vary from that mentioned above. Please visit for the latest rates/offers.

Leave a Reply

Your email address will not be published. Required fields are marked *