EMI Bounce: Does the guarantor have to pay all the money to the bank if the loan is not repaid? Know the rules..

EMI Bounce: Becoming a guarantor for a relative or friend's loan is not just a formality, but a serious financial commitment. It directly affects your own financial health and credit score (CIBIL). If the original borrower defaults on payment, the responsibility of repaying the loan falls on you, which may affect your eligibility to take a loan in the future.

Banking and finance experts warn that this decision can affect your financial future for a long time, so take this step with complete information and with utmost caution.

If there is a default, your own CIBIL will also sink.

Becoming a guarantor means that if the person taking the loan does not pay the EMI or loan amount on time, then the entire responsibility falls on the guarantor. If there is a default, the bank or financier will first send a notice to the guarantor for payment. Not only this, this default also gets recorded in your credit record, which can lead to a drop in your CIBIL score - if you have not taken the loan yourself.

It will affect the eligibility to take a loan and credit limit.

The bank will count this loan in your total credit limit, i.e., your "total liabilities". This means - if you need a personal, home, or car loan in the future, your eligibility will be reduced or the interest rates may increase. Your debt-to-income ratio will increase, which the bank considers your responsibility.

Removing the name is very difficult.

People often misunderstand that they can come out of the responsibility of guarantor whenever they want, but this is not true. Once you become a guarantor, your responsibility remains until the entire loan is repaid or the bank releases you from this responsibility in writing. It is usually difficult to remove your name as a guarantor, because for this, the consent of both the loan holder and the bank is necessary.

Does every guarantor's CIBIL score deteriorate?

No, if the loan is repaid on time, then there is no effect on your score. The effect comes only when the installments are late or the loan is defaulted. That is why experts advise that if you have become a guarantor, then keep checking your credit report from time to time so that any discrepancy or delay can be detected immediately.

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