How Can Being A Loan Guarantor Affect Your CIBIL Score?

Does becoming a loan guarantor can have an impact your CIBIL Score? Read to know the complete details here. Visit Now!

23 Nov,2022 18:09 IST 41 views
How Can Being A Loan Guarantor Affect Your CIBIL Score?

Many rely on different types of loans to cover their expenses during a cash crunch. Lenders have set an eligibility criterion that the borrower must fulfil to approve their loan application. However, suppose the borrower meets most of the eligibility criteria but fails in fulfilling one or two factors. In that case, lenders demand that the borrower get a loan guarantor to take responsibility in case of any default.

However, if a borrower requests you to be a loan guarantor, it can affect your CIBIL score.

What Is A CIBIL Score?

When banks and NBFCs offer the loan amount to any borrower, they take on a high risk if the borrower defaults on the repayment. Lenders mitigate such risks by analysing the credit score of borrowers. The CIBIL score is a three-digit evaluation out of 900 that helps the lender check the borrower's creditworthiness before offering the loan amount.

Financial institutions consider an individual with a score closer to 900 more capable of repaying a loan than those with a lower credit score in India. Since most loans are unsecured and do not require pledging any asset, lenders prefer to offer the loan to borrowers with a high CIBIL score.

However, if individuals have a low CIBIL score, they can still avail of a loan. But, the lenders require a loan guarantor who can take the responsibility and financial obligations on the borrower’s behalf.

The Role Of A Loan Guarantor

A loan guarantor is an individual who agrees to take responsibility for the primary borrower’s repayment if they default on the loan repayment. On default of repaying the loan, the lender shifts all the repayment obligations onto the loan guarantor, who becomes equally responsible for paying off the outstanding loan amount.

Many people agree to become loan guarantors, believing their responsibility is limited to ensuring that the debtor pays his EMIs on time. However, a loan guarantor is bound to pay the loan amount if the debtor defaults, which impacts their credit score and loan eligibility.

How Does Being A Loan Guarantor Affect Your Credit Score?

• Responsibility

A loan guarantor is financially and legally responsible for repaying the loan in the case of default by the primary borrower. Lenders demand a borrower has a loan guarantor if they have a low credit score or do not fulfil other factors included in the eligibility criteria.

Since the borrower may have a low credit score, the possibility of default becomes higher. If you default, you become solely responsible for repaying the loan, which affects your credit score based on the performed financial transactions.

• Loan-Taking Ability

Becoming a loan guarantor can reduce your loan-taking power. Your loan eligibility reduces from what it would have been if you weren’t a guarantor. Suppose the borrower defaults on the loan. In that case, it will reflect on your credit report, decreasing the chances of future loan approval owing to a low CIBIL score.

• Financial Obligations

If you are a loan guarantor, you may already have an existing loan in your name or other financial obligations. If the primary borrower defaults, you become responsible for repaying the outstanding loan amount. It can create a financial burden on you, and you can default on repaying your current financial obligations, increasing your current interest rates and decreasing your credit score.

Avail Of Ideal Loans From IIFL Finance

Now that you know how being a loan guarantor can affect your credit score, it is wise to execute a CIBIL score check if you are a loan guarantor. Furthermore, in the future, you can recommend IIFL Finance loan products for availing of immediate capital.

IIFL Finance offers various financial services and customised and comprehensive loans up to Rs 30 lakh with a fast disbursal process online and minimal paperwork. The loans’ interest rates are attractive and affordable to ensure the repayment doesn’t create a financial burden. You can apply for the loan online or offline by visiting IIFL Finance nearest branch and verifying your KYC details.

FAQs:

Q.1: What is the perfect CIBIL score to get loans From IIFL Finance?
Ans: A CIBIL score above 750 out of 900 is ideal for getting loans from IIFL Finance.

Q.2: How to get loans with an average CIBIL score?
Ans: Start by improving your CIBIL score. However, if you need immediate capital, you can find a guarantor or provide collateral to the lenders.

Q.3: Can I stop being a Loan Guarantor in the middle of the loan tenure?
Ans: Lenders do not allow a loan guarantor to withdraw from the liability in the middle of the loan tenure. The only way to stop being a loan guarantor is when the primary borrower finds a new loan guarantor.

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