On Home Loans: Being a loan guarantor

A childhood friend wants me to be a loan guarantor. I am not completely aware of his financial situation, however, as we have been out of touch for the past few years and have got in touch recently. I am confused. Please advise.

— Gautam

Becoming a loan guarantor for an individual needs to be a well-thought-out decision, and shouldn't be taken in haste. Though the person who is taking the loan is expected to repay the loan and not the loan guarantor, it still places a huge responsibility on the loan guarantor's part.

For instance, if your friend defaults on the loan, then the responsibility for repaying the loan will fall on your shoulders, and to add to your misery, it will adversely impact your credit score, as you will be held accountable if your friend fails to repay his loan.

Being a loan guarantor is a risky business, and is best avoided, unless and until you are completely confident of the credibility of the loan applicant and his ability to repay. Further, as a loan guarantor, you will be screened by the bank in terms of your credit score, and will need to meet their stringent criteria. This is done to make sure that in the event the borrower isn't able to repay he should have the means to repay the loan himself!

Hence, make your decision after evaluating your friend's repayment capability in a judicious manner.

(Adhil Shetty, CEO, BankBazaar.com, will respond to questions on home loans.

E-mail questions to: > blproperty@thehindu.co.in)

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