Are you becoming a guarantor for someone else? Here are a few points to remember before you sign up as one

Talking about money is always a tricky affair. So what do you do when someone asks you to be their guarantor for a loan, they want to take. While you may trust the person’s financial credibility, it’s always best to remember a few things before you choose to help them by becoming their guarantor.

“This is because while sanctioning a high value loan, banks often insist on having a family member guarantee the loan for security reasons. While it is okay to guarantee a loan, it is important to understand the implications of the responsibility which you are accepting as a guarantor on this loan,” said Harshala Chandorkar, Senior Vice President – Consumer Services and Communication, CIBIL.

BI India lists down a few points to remember when you become the guarantor for someone else’s loan”

You pay off loan in case of default or untimely death

A guarantor automatically becomes liable to pay EMIs in case the principal borrower defaults on payments. “While signing the loan papers as the guarantor, you are pledging as a guarantor on the loan, you are also legally responsible towards the timely repayment of the loan. A guarantor pledges to repay a loan on behalf of a third party who has taken the loan,” said Chandorkar. It’s a similar situation in the case of untimely death of the primary borrower. The onus of repaying loan is on the guarantor.

Your CIBIL report is impacted

If you sign up as a guarantor for someone, the loan gets reflected in your CIBIL report. According to Chandorkar, the information on the appears in the “Accounts” section of the guarantor’s CIBIL report. “The ownership status of this loan account will be reflected as ‘Guarantor’. The guarantor’s CIBIL report will also show the month-on-month payment behavior of the principal borrower towards this loan. Any delinquencies and defaults will also get captured and reflected in the Guarantor’s CIBIL report,” she noted.

Your CIBIL TransUnion Score gets impacted

“In case of defaults and delinquencies by the principal borrower, the CIBIL TransUnion Score of the guarantor will also get negatively impacted. Hence, it’s imperative that the guarantor on the loan should ensure that the borrower pays the EMIs regularly on the due date, month on month,” pointed out Chandorkar.