People usually sign the documents related to becoming a guarantor for a loan without properly understanding it, even when it carries big risks and obligations. After becoming a guarantor, the person is bound by law to follow all the rules which he/she has agreed to by signing the documents.
The guarantor gives consent to repay the loan in case of non-payment by the borrower even if means the person has to sell his/her own property. Even if the borrower dies, the responsibility of the guarantor does not end. In this situation, the account of the borrower is frozen and the responsibility of the guarantor remains till the payment of the outstanding amount of the loan is completed.
Apart from this, the bank can take legal action against both the borrower and the guarantor for loan recovery simultaneously. It is not necessary that action should be taken first against the borrower. In case of non-payment, the bank can also declare the guarantor as a defaulter. Under the bankruptcy law, recovery action can be taken by registering a case against the guarantor.
Suresh Bansal, Insolvency Expert, says that for loan repayment, the borrower and the guarantor are equally liable. If the bank takes action against the guarantor, then, he cannot say that action should be taken against the borrower first.
So, if there is even the slightest doubt about the financial health or habits of the borrower, then it is better to think twice before becoming a loan guarantor for that person… Do not become a guarantor because of any compulsion. Before becoming a guarantor, clear all your doubts from the bank officials and borrower.
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