Think Before Becoming A Guarantor

In case the guarantor refuses to fulfill the demand made by the banker/creditor despite having adequate means to repay the outstanding debt then the guarantor will also be treated as willful defaulter in the eyes of the law.

Apr 27, 2015 05:04 IST India Infoline News Service

The Reserve Bank of India (RBI) has tightened the rules for guarantors, who give surety to a loan. The new rules will see guarantors as 'wilful defaulters' if the borrowers of loan default intentionally. In such case, guarantors will be liable to pay on behalf of the borrower. In case the guarantor refuses to fulfill the demand made by the banker/creditor despite having adequate means to repay the outstanding debt then the guarantor will also be treated as willful defaulter in the eyes of the law.

New Rules
Not only the guarantor will have to discharge the liability on behalf of the borrower but also runs the risk of marring his own credit score. Banks and lenders pass on the information of a guarantor's track record to Credit Information Bureau or Cibil, which can negatively impact the loan eligibility of a guarantor. Hence, no matter how guarantor has worked hard to keep his credit profile clean, any default on the loan for which he is a surety will impair his own credit eligibility.

Stringent for guarantors
Another important feature of the new rule pertaining to a guarantor is that the guarantor's liability of a guarantor will be coextensive with that of the original borrower. This means that the banks or lenders will not come after guarantor as a last resort but can immediately make guarantor liable to repay the debt at the single instance of default by the borrower. That puts guarantor, as good as the borrower, where the former has to assume the liability if the latter defaults willfully.

The changed rules should make one cautious enough before becoming a guarantor to a loan. A guarantor should be certain about the repayment capacity of the borrower before extending any surety. An individual should carefully weigh the pros and cons of taking such a big step. 

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