Loan Guarantor Risks: Financial Liability and Impact
Author: Ian C. Langtree - Writer/Editor for Disabled World (DW)
Published: 2010/08/25 - Updated: 2026/01/14
Publication Type: Informative
Category Topic: Finance - Related Publications
Page Content: Synopsis - Introduction - Main - Insights, Updates
Synopsis: This information provides essential guidance on the legal and financial implications of serving as a loan guarantor, drawing on insights from banking professionals and legal experts to explain how guarantor agreements work. The content offers practical value to anyone considering guaranteeing a loan for family members or friends, particularly those in the disability community who may face unique financial situations or be asked to help relatives secure financing. By detailing how guarantor status affects credit reports, reduces future borrowing capacity, and creates enforceable debt obligations in case of default, this resource helps readers make informed decisions about a commitment that could significantly impact their financial health for years to come - Disabled World (DW).
Introduction
It's difficult to say no when a relative or a friend asks you to guarantee her home loan. But a mere signature and a bit of paperwork could cost you dear at a later date.
"A guarantor on a loan is someone who accedes to be accountable (legally liable) for the repayment of the borrower's debt in case of default for whatever reasons," says Uday Wavikar, a Mumbai high court advocate.
So, even at the cost of sounding rude, consider what we have to tell you before agreeing to become a guarantor on a home loan.
Main Content
Who can be a Guarantor?
"Lenders prefer blood relatives, but friends and colleagues can also provide a guarantee," says Kartik Varma, co-founder, iTrust Financial Advisers Pvt. Ltd.
Family, friend or colleague, becoming a guarantor entails a huge responsibility. So, banks will ensure you are able to bear that responsibility. Banks would check your credentials thoroughly on the basis of pre-determined criteria, such as income. Banks would also ask for details of your assets and liabilities along with copies of supporting documents. You would also have to sign a legal agreement.
Future Loan Prospects
Becoming a loan guarantor would significantly reduce your loan-taking capability.
"If someone is a guarantor on a loan, his own loan eligibility comes down than what it would have been if he wasn't a guarantor," says Kamlesh Rao, executive vice-president (mortgages), Kotak Mahindra Bank Ltd.
When deciding a guarantor's loan eligibility, banks would take into account the amount guaranteed to reduce eligibility by that extent.
Your Credit Report Will Show Liability
The borrower's as well as your credit reports will mention that you are a guarantor. Says Arun Thukral, managing director, Credit Information Bureau (India) Ltd:
"A guarantor's report will state so. In fact, for any valid application, the bank can access the guarantor's credit report."
Also, if the borrower defaults on the loan, it will reflect on the guarantor's credit report.
What if a Borrower Defaults?
The reasons for default could be beyond anybody's control: unforeseen financial hardships, unemployment, disability or even death.
Every bank has an internal recovery policy they adhere to. First, the banks would try and recover the debt from the borrower. But, if that doesn't work, you will get a notice next. If the bank decides to recover the funds from you, you will be liable to make the payments.
Abhijit Bose, senior vice-president and head-retail assets, Development Credit Bank Ltd, says:
"When the bank legally recalls the loan, the entire loan amount becomes payable."
Insights, Analysis, and Developments
Editorial Note: While helping a loved one secure financing can feel like an act of generosity, the legal reality of guarantor agreements demands careful consideration before signing. The financial consequences extend far beyond goodwill - your credit profile, borrowing capacity, and assets become intertwined with another person's ability to repay debt. For individuals with disabilities or those on fixed incomes, taking on guarantor liability can be particularly risky, as unexpected economic hardship could jeopardize their own financial security. Before agreeing to guarantee any loan, potential guarantors should request full disclosure of the borrower's financial situation, understand the lender's recovery policies, and honestly assess whether they can absorb the debt if circumstances change. Sometimes the kindest answer is simply explaining why you cannot take on this level of financial exposure - Disabled World (DW).
Author Credentials: Ian is the founder and Editor-in-Chief of Disabled World, a leading resource for news and information on disability issues. With a global perspective shaped by years of travel and lived experience, Ian is a committed proponent of the Social Model of Disability-a transformative framework developed by disabled activists in the 1970s that emphasizes dismantling societal barriers rather than focusing solely on individual impairments. His work reflects a deep commitment to disability rights, accessibility, and social inclusion. To learn more about Ian's background, expertise, and accomplishments, visit his full biography.