Don’t be a guarantor unless you know these!

We gave you a few tips to remember before you became the guarantor for a third party’s loan. Now, BI India shares a few more do’s and don’t’s you must keep in mind before guarantying a loan.

Check third party’s credibility

If you have been approached by someone to sign up as a guarantor, it is always advisable to learn about the person’s credit history. For instance, if the person has defaulted in his payments before, it is best not be the guarantor. There is nothing wrong in asking one his CIBIL credit score if he has approached you to be his guarantor.

Read the document

In India, matters related to money are based on trust. So, when you agree to be a guarantor for your relative or a dear friend, ensure you have read the terms and conditions specified in the loan agreement. Understand under what circumstances will you be liable to pay and how much of it is your responsibility.

“Read and understand the nature of the guarantee. A prospective guarantor must not sign a document that he has not read or sign a document which is in fact a blank form or a partially completed form. You may seek legal advice on the legal implications of the guarantee before signing,” Harshala Chandorkar, senior vice president- Consumer Services and Communications at CIBIL tells BI India.

Check your credit score

Before you sign up as a guarantor, check you CIBIL score. If you are trying to improve your credit score or have loans against your names, its best to politely decline the request. Chandorkar says that it is advisable to check your CIBIL report and CIBIL TransUnion Score before guarantying the loan in order to assess you credit standing prior to taking additional responsibility. Too many credits along with an additional third party loan may spoil your credit score.

Do not sign if not comfortable

If you are uncomfortable with a certain clause in the loan agreement, it is advisable to put your foot down and express your disagreement. Ensure you have a clear understanding of all the clauses as in event of default or death, the third party loan could become your responsibility.

Do not share your details

If you are becoming a guarantor to a third party, who is taking a loan from an individual or lesser know lender, then its best not to share your information with them. “Be cautious about giving a photocopy of your identity card or passport to anyone other than the financial institution,” she adds. Also, ensure, you get a copy of all the relevant documents of the loan, you have signed up as a guarantor for.