Loan Guarantor Rules: Becoming a loan guarantor may prove costly, first know the rules of banks...

Often people become guarantors of their friends and relatives when they take loans. If the loan is not deposited on time, the guarantor has to face many problems. You may even have to repay the loan along with the legal notice from the bank. Therefore, when becoming someone's guarantor in a loan matter, it is very important to make the decision thoughtfully. Before becoming a loan guarantor, it is important to know the guidelines and rules of RBI, so that one can avoid getting into any kind of trouble. It is generally seen that in rural areas, farmers take loans for purchasing land and agricultural activities and also become guarantors. Whereas, in urban areas, a guarantor is required on many occasions to buy a vehicle, or house or take property on lease.

Who is the guarantor?
A guarantor is a person who gives his consent to the bank to be responsible for the payment of someone else's loan. If any other person defaults in the payment of the loan, then the bank has to provide the option of making the loan payment to the guarantor. Becoming a guarantor is not a mere formality to help the borrower, the guarantor is equally responsible for repaying the loan.

RBI instructions on loan guarantor
The Reserve Bank of India issues instructions to banks to make rules related to loan guarantors. RBI allows banks to frame their own guidelines for loans that require a guarantor. According to RBI rules, the rules regarding guarantors depend on many factors like the repayment capacity of the loan applicant, his income, employment, and housing details.

Is the guarantor responsible for the loan?
A guarantor is a financial term that describes a person who promises to pay if the borrower is unable to repay the loan. Guarantors pledge their property as collateral against the loan. As per RBI rules, the loan guarantor signs a contract for the property taken on lease or the loan taken. After this, he becomes legally responsible for the outstanding money of the tenant or the borrower.

Problems faced by the guarantor
     Being a guarantor for the loan holder becomes a cause of trouble when the loan is not repaid.
     In such a situation, the liability of the loanholder gets transferred to the guarantor, which spoils his CIBIL score.
     Delay in loan or non-payment may result in legal notice.
     If the loan payment is not made, the additional financial burden on the guarantor increases.
     The guarantor finds it difficult to get a loan for himself in the future.
     Once a guarantor is made, it cannot be canceled. Only the bank can free you.

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