If you are becoming a guarantor for the loan of a relative, friend or acquaintance, then be cautious. This can not just make a formality or friendship, but can have a direct impact on your own economic health. According to banking and finance experts, the decision to become a guarantor can last longer on your credit score (cibil) and your ability to take loans in the future.
If the default is done, your own cibil will also drown
Becoming a guarantor means- If the person taking the loan does not pay the EMI or loan amount on time, then the entire responsibility is made of the guarantor. If there is a default, the bank or the financier will first send notice to the guarantor for payment. Not only this, this default is also recorded in your credit records, which can cause a decline in your CIBIL score-if you have not taken a loan yourself.
Loan ability and credit limit will affect
Banks will count this loan in your total credit limit i.e. your “total liabilities”. This means-If you want a personal, home or car loan in future, your eligibility will decrease or interest rates may increase. Your Debt-to-Income Ratio will increase, which the bank assumes your responsibility.
Name is very difficult to remove
Often people believe that they can come out of becoming a guarantor anytime, but in most cases it is not possible. Your responsibility does not end until the loan is completely repaid or the bank gives a discount in writing. If both the loan holder and the bank are ready, then only the name can be removed-which is not really easy.
Does every guarantor’s cibil definitely deteriorate?
No, if the loan continues on time, then your score is not affected. The effect comes only when the installments are late or the loan is default. That is why experts recommend that if you are a guarantor, then keep checking your credit report from time to time so that any disturbance or delay can be found immediately.