We often become guarantors to help our relatives or friends. But this isn't just a signature. It simply means that if the borrower (your friend or relative) doesn't repay the loan, the bank will recover every penny from you. The bank won't offer you any concessions; you'll be held equally responsible.

Suppose your friend delays paying EMIs. This will directly impact your CIBIL (credit) score. Your score could be so poor that in the future, when you need a home loan, car loan, or personal loan, the bank will either refuse to grant you the loan or charge exorbitant interest.

Don't assume you only have to pay the principal amount. If the loan defaults, the bank will charge you the principal amount, along with the full interest, late payment fees, and various penalties. This amount can be so substantial that it could jeopardize your entire life savings.

As soon as the loan defaults, the bank will begin sending you legal notices. You may have to go to court, which will waste both time and money. Worse, the financial stress can permanently damage your relationship with the loved one you helped by acting as a guarantor.

Once you become a guarantor, you can't easily withdraw your name. Unless the borrower provides another guarantor to the bank (which the bank is unlikely to agree to), you will remain legally bound by the loan. Therefore, think twice before signing any paperwork and carefully read all documents.

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