If your friend for whom you decided to stand a guarantor defaults in paying equated monthly installments (EMIs) for his home or car loan, chances are that it may directly affect your credit, making it difficult for you to get a loan.
Credit Information Bureau India Ltd (Cibil), which assesses customers’ repayment capacity, has said that guarantors’ credit-worthiness and score would be directly hit not only in case the borrower defaults, but even if there is a repeated delay in repaying EMIs. “Those who sign up as guarantors for customers going in for loans must be careful as their credit-worthiness would depend on the repayment pattern of the borrower,” a Cibil executive told HT.
Banks’ gross non-performing assets (NPAs) or bad loans, which have been rising consistently due to the economic slowdown, touched 5% so far in 2013
However, according to Cibil, 75% borrowers across India who have taken loans have been rated very safe despite slowdown, which led to job losses and salary cuts.
“The retail loans are by and large performing well and the NPA arising out of them is not worrisome,” said M Narendra, CMD, Indian Overseas Bank.
A few banks, meanwhile, have also decided to put up photographs and other details of wilful defaulters in an attempt to recover outstanding dues.
If that does not work and the borrower does not clear the dues within 15 days, banks could even publish the photographs of the guarantors, who would then be debarred from getting credit.
So next time, before signing up as guarantor to a friend seeking credit for a house or car, make sure that the borrower is in a habit of paying his equated monthly installments (EMIs) on time and also has sufficient resources to payback. In case of a default, your own credit profile may be dampened and banks may be unwilling to provide you loans.