Whenever someone takes a loan, he needs a guarantor, which is very important to complete the loan process. You may have signed someone’s loan file as a witness or guarantor. But imagine what will happen if the person for whom you have signed fails to repay the loan on time. Will having a guarantor affect you? Will you have to repay the loan amount, or could you be prosecuted? So, let us understand what happens to the guarantor if one does not repay the loan, and what are the rules in this case?
Who is a loan guarantor?
A loan guarantor is one who gives a written assurance to the bank or finance company that if the borrower is unable to repay the loan, they will repay the loan on his behalf. Suppose a person wants a loan from the bank, but the bank does not have full confidence in him. So the bank calls a trusted person to give guarantee. The person who takes this responsibility is called a guarantor.
Will the guarantor have to pay?
If the loan borrower is unable to pay the EMI, the bank has the right to recover the money from the borrower. Sometimes, the bank may ask for EMI or the entire outstanding amount directly from the guarantor. Delhi High Court lawyer Prem Joshi explains that in such a situation, the responsibility of paying the money will be on the guarantor, and the outstanding amount will have to be paid to the guarantor. Joshi explains that if someone does not pay the installment, no charge will be levied directly on the guarantor. In such a situation, the borrower will either have to appear in court, or if they disappear, they may have to repay the money.
Section 128 of the Indian Contract Act, 1872, states the responsibilities of the guarantor. According to this section, the liability of the guarantor is equal to that of the principal debtor, unless otherwise stated in the contract. This means that the guarantor is equally responsible for repaying the loan. If the borrower fails to repay, the bank can seek payment directly from the guarantor. The Supreme Court had once ruled that banks could recover the loan directly from the guarantor before taking action against the principal borrower.
Credit score may also be affected
Credit Score: Loan default also affects the credit history of the guarantor. This may cause financial problems.
