Guarantor to loan? What responsibility you have to shoulder

In an interview to CNBC-TV18, Gaurav Mashruwala, Certified Financial Planner shared his views on loans and explained the responsibilities of a guarantor.

Also Read: 11 awesome tips to save money you never knew! Below is the verbatim transcript of Mashruwala's interview with CNBC-TV18. Caller Q: What commitments are associated with being a guarantor to a loan which my friend is planning to take? A: Basically the responsibilities are that in case your friend defaults you will have to make good the loss, of course the bank can liquate the asset but whatever will be the shortfall it will be completely on you to repay. So, it's a call that you will have to take. Once you become a guarantor you cannot back out in between, for example if your friend is taking a 10 or 15 year loan then you will remain guarantor for that period unless interim you want to opt out and the lender is willing to get somebody else, if the lender is accepting somebody else coming in. However, it's a trickier situation so your call on your friend making losses and not paying and the tenure are the important things that you need to be careful of. Q: A bank will liquidate the asset only then touch his money, right? A: Yes. if there is a mortgage, bank will also speak to him. If it is a clean loan I would have been more worried because then it is more risky proportion. Here, there is an asset so bank has recourse to asset as well but the caller is responsible and he is responsible till the time the loan is paid back. He cannot move out in between. So, after five-seven years he cannot say he doesn't want to remain a guarantor. He will have to remain a guarantor till his friend repays the loan completely.