the widespread salary cuts job losses and general slowdown in the economy has also heightened the risk of loan defaults to prevent a large number of defaults the rbi directed banks and other lenders to offer a threemonth moratorium and then extended it by another three months till august experts feel this will defer but not completely avoid the problem of default loan defaults are bad news for people who have stood as guarantors to loans taken by friends and relatives banks usually dont insist on guarantors for all loans but they do when the collateral is not sufficient or when they doubt the repayment ability of the borrower a guarantor is a must for bigticket education loans and loans taken by retired personsthink before you jump ina borrower usually taps a family member or a close friend to become a guarantor if someone approaches you the first thing to do is assess his repayment capacity a guarantor should probe the borrower like a bank and stand guarantee only when he is sure that the person is sincere and has the willingness and ability to pay says dn panigrahi professor of banking finance goa institute of management if adequate precautions are not taken loan guaranteeing can turn into a nightmare most people stand as a guarantor to avoid losing a good relationship but they often end up losing money and also the relationship says cs sudheer ceo and founder indianmoney comunderstand the risks involvedmost people know that a guarantor is liable to pay if the borrower defaults on the loan repayment however there are other risks that the guarantor is exposed tostanding guarantee for someone elses loans will impact your own loan eligibility there is no difference between the borrower and guarantor in terms of liability the only difference will be in terms of cash flows banks consider guaranteed loans as contingent liabilities they are seen as part of a persons total liability and his eligibility for credit will be reduced by the outstanding amount in the guaranteed loan says gaurav aggarwal director head of unsecured loans paisabazaarcom one should keep in mind ones future loan requirements before becoming a guarantordefault by the borrower will also impact the credit score of the guarantor the guarantor details also get reported to the credit bureaus and borrowers and guarantors are treated as equals in case of defaults this applies even to irregular emi payments by the borrower banks may not inform the guarantor in case of irregular emi payments by the borrower however this will impact the credit score of the guarantor and he may not easily get a loan in the future says adhil shetty ceo bankbazaarthe guarantors liability is not restricted to only the borrowed amount the indian contract act uses the word surety for guarantor and section 128 of indian contract act very clearly states that the liability of the surety is coextensive with that of the principal debtor unless it is otherwise provided by the contract