When you agree to become a loan guarantor, you will shoulder the liability of the loan. To simplify, if the borrower has to repay to the bank and has defaulted, the bank will in turn hold you liable to repay the loan.
You will be entitled for:
- Repaying the loan if the borrower chooses not to do so.
- Having to sell of your assets in order to repay the bank.
- Posses a poor credit rating and the inability to access for any further debt in future.
- Losing the borrowing capacity from you bank if you are a guarantor.
What you should realize is that, there is no harm being a loan guarantor but there are certain precautions you need to take before you sign those documents.
It is very important to know the person for whom you are going to be the guarantor. If it’s your family member, then the trouble may not arise. But if it is your colleague or a friend you intend to help, then you should know the person very well.
Approach CIBIL:
You can take the help of the report produced by CIBIL to determine the credit standing of the borrower. This report will provide you the details as to what are the other liabilities the borrower has to repay, what is the actual earning capacity etc.
Borrowing capacity:
It is important to find out if you shoulder the liability then, will you be in a position to take more debt in finance your personal financial requirements.
Go for short term loans:
If you really want to help the borrower in need, you can help them by signing up for a guarantor for short term loans like a car loan or an education loan etc.