Co-Signer Reality:
┌────────────────────────────────────────┐
│ Primary Borrower ←→ Co-Signer         │
│        ↓              ↓                │
│    EQUAL LIABILITY FOR FULL LOAN       │
│        ↓              ↓                │
│  Bank can pursue EITHER for 100%       │
└────────────────────────────────────────┘

Guarantor Structure:
┌────────────────────────────────────────┐
│ Primary Borrower (First Liable)        │
│         ↓                              │
│ If Default                             │
│         ↓                              │
│ Guarantor (Second Liable)              │
│         ↓                              │
│ Must Pay ENTIRE Outstanding Amount     │
└────────────────────────────────────────┘

Section 126-147: Guarantee Contracts

Key Provisions:
- Guarantor's liability is co-extensive with borrower
- Can be held liable immediately upon default
- Continuing guarantee remains until revoked
- Cannot escape liability easily once signed

For Secured Loans:
- Bank can proceed against guarantor's assets
- Without court intervention
- After following due process
- Even personal assets at risk

When Borrower Defaults:

Step 1: Bank contacts borrower
Step 2: Bank contacts co-signer/guarantor
Step 3: Legal notices issued
Step 4: Recovery proceedings initiated
Step 5: CIBIL marking as defaulter
Step 6: Legal action/asset seizure

Most Common Type:
- Individual guarantees another's loan
- Personal assets at risk
- Full liability for loan amount
- Used for: Personal loans, business loans

Business Context:
- Company guarantees for group company
- Directors may give personal guarantee
- Cross-corporate guarantees common

Financial Instrument:
- Bank guarantees on behalf of customer
- For contracts, tenders, etc.
- Different from loan guarantee

Important to Understand:
- Covers multiple/future transactions
- Remains valid until specifically revoked
- Common for credit facilities
- Read documents carefully!

CIBIL Impact:
- Loan appears as YOUR loan
- EMI payment history reflects on you
- Utilization affects your score
- Defaults severely damage your score

Example:
Friend's home loan: ₹50 lakhs
Your CIBIL shows: ₹50 lakh loan liability
Your future loan eligibility: Reduced

CIBIL Impact:
- Shows as "Guarantee" in report
- Less direct than co-signer
- Default still damages your score
- Lenders consider guarantee exposure

Example:
Guaranteed loan: ₹20 lakhs
Your CIBIL shows: ₹20 lakh guarantee
Banks may ask about it for your loans

Your Good Credit (750 score):

As Co-Signer:
- Friend misses 3 EMIs
- Your score: 750 → 650
- Your loan applications: Affected immediately

As Guarantor:
- Friend misses 3 EMIs
- Bank pursues friend first
- Then contacts you
- Your score affected if you don't pay

What You're Signing For:
Principal: ₹10,00,000
Interest over tenure: ₹4,00,000
Late fees and penalties: Variable
Legal costs: If it goes to court

Your Potential Liability: ₹14,00,000+

This is REAL money you may have to pay!

If You Can't Pay:
- Bank accounts attached
- Property can be seized
- Salary can be garnished
- Investment accounts frozen
- Legal proceedings initiated

Uncomfortable Reality:
- Asking friend/family to pay = stress
- They may blame you for bank pressure
- Money disputes ruin relationships
- Holidays become awkward
- Family events get complicated

Your Future Loans:

Want Home Loan: ₹50 lakhs
Already Co-signed: ₹20 lakhs

Bank's View:
- Your total exposure: ₹70 lakhs
- May reduce your loan amount
- Higher rate for higher risk
- May reject if income insufficient

Typically Required When:
□ Insufficient income
□ Low credit score
□ No credit history
□ Self-employed (new business)
□ High loan-to-income ratio
□ Age-related concerns
□ Employment instability
□ Insufficient collateral

Education Loans:
- Student has no income
- Parent co-signs

Home Loans:
- Spouse as co-applicant
- Parent for young borrowers

Business Loans:
- Director's personal guarantee
- Proprietor's guarantee

Personal Loans:
- For low-score applicants
- First-time borrowers

Financial Assessment:
□ Can I afford to pay this loan if needed?
□ How will it affect my loan eligibility?
□ Do I have emergency funds if called upon?
□ What assets are at risk?

Relationship Assessment:
□ How well do I know this person?
□ What's their financial track record?
□ Why can't they get loan independently?
□ Can our relationship survive if things go wrong?

Practical Assessment:
□ Is the loan purpose sensible?
□ Is the amount reasonable?
□ What's the repayment plan?
□ How long is my liability?

Before Agreeing, Ask:
□ Why do you need a co-signer/guarantor?
□ What's your monthly income?
□ What are your existing loans?
□ What's your credit score?
□ What's your repayment plan?
□ What happens if you can't pay?
□ Are you willing to sign an agreement with me?

Request and Review:
□ Loan application/agreement
□ Borrower's credit report
□ Their income documents
□ Exact terms of your liability
□ Default consequences
□ Release conditions
□ Tenure and EMI amount

Protective Measures:
1. Limit Your Liability
   - Ask for specific amount guarantee
   - Time-limited guarantee
   - Collateral-limited (only that property)

2. Get Collateral from Borrower
   - Personal agreement with borrower
   - Post-dated cheques
   - Their property as security to you

3. Written Side Agreement
   - Borrower's promise to you
   - Repayment terms
   - Consequences of default
   - What you can claim from them

Agreement Between Borrower and Guarantor:

1. Borrower confirms this is their sole responsibility
2. Borrower will inform guarantor of any payment issues
3. Borrower will provide monthly payment proof
4. If guarantor pays, borrower will reimburse within X days
5. Borrower pledges [asset] as security to guarantor
6. This agreement is enforceable in court

Ongoing Vigilance:
□ Request to receive loan statements
□ Check CIBIL quarterly
□ Ask borrower for payment receipts
□ Set calendar reminders for EMI dates
□ Watch for signs of financial stress
□ Address issues early

Watch For:
- Borrower avoiding your calls
- Requests for help with EMI
- Job loss or income reduction
- Other financial stress signs
- Excuses about "temporary" issues
- Bank calls/messages to you

Immediate Actions:
1. Understand the default amount
2. Contact borrower urgently
3. Assess their ability to resolve
4. Contact bank to understand options
5. Consider paying if small amount
6. Consult lawyer if large amount
7. Protect your assets

With Bank:
- Request payment plan
- Ask for reduced penalty
- Propose settlement amount
- Request time extension
- Ask about restructuring

With Borrower:
- Formal repayment demand
- Asset recovery options
- Legal action if needed
- Mediation/arbitration

If You Pay the Loan:
- Right of subrogation: Step into bank's shoes
- Can sue borrower for recovery
- Can pursue their assets
- May have side agreement to enforce

Limitation:
- Legal process is long
- May not recover full amount
- Relationship definitely destroyed

When Release Possible:
1. Loan is fully repaid
2. Bank agrees to substitute guarantor
3. Borrower's creditworthiness improved
4. Additional collateral provided
5. Mutual agreement

Steps:
1. Write to bank requesting release
2. Provide reason/justification
3. Bank assesses loan performance
4. May require new guarantor/security
5. Bank issues release letter
6. Verify CIBIL reflects release

Banks Often Refuse Release:
- Loan is performing well (why change?)
- Borrower's profile hasn't improved
- No substitute security
- Bank policy restrictions

Your Options:
- Wait for loan closure
- Negotiate with additional security
- Legal options (limited)

Refuse If:
✗ Borrower has poor credit history
✗ Loan amount is beyond your capacity
✗ You don't fully understand the terms
✗ Borrower won't explain why they need you
✗ It's a business you don't understand
✗ You're being pressured
✗ You've been burned before by same person
✗ Your gut says no

Approaches:
"I'm not in a financial position to guarantee loans right now."

"My financial advisor has advised against co-signing loans."

"I have a personal policy against financial guarantees."

"I'd like to help in other ways - can we explore alternatives?"

"Let me think about it" (then decline after "thinking")

Instead of Guaranteeing:
- Help them improve credit score
- Connect with other lenders
- Lend smaller amount directly
- Help with financial planning
- Support job search if income issue
- Co-invest in their business (if you believe in it)

Common for Education/Home Loans:
- Usually appropriate
- Monitor the loan
- Have frank conversations
- Include in estate planning
- Consider insurance coverage

Often Required:
- Joint property = joint loan
- Both incomes considered
- Fair if both benefiting
- Protect through insurance
- Clear agreement on responsibilities

Sometimes Happens:
- Company loan schemes
- Director personal guarantees
- Cross-guarantees among colleagues

Advice:
- Understand full implications
- Get legal advice
- Document everything
- Consider career implications of refusal

Minimum Requirements:
□ Full loan documents provided in advance
□ Time to review (don't sign same day)
□ Lawyer review if large amount
□ Written confirmation of liability limits
□ Release conditions clearly stated
□ Side agreement with borrower
□ Insurance on borrower's life (you as beneficiary)
□ Regular statement access