Taking a home loan is not a very easy task. There is a lot of paperwork that needs to be done before the housing finance company approves or disburses your loan. A number of legal papers are signed between the buyer, seller and the HFC.

The guarantor, the person who is neither buying/selling nor taking the loan from the HFC signs one such paper thereby undertaking the responsibility for the payment of the loan by the loan-seeker.

Although a guarantor is not a mandatory requirement, many of the HFCs ask for a guarantor before sanctioning the loan. Most of us do not pay due attention before becoming a guarantor for a colleague, friend or relative. But one needs to be careful before signing up to act as a guarantor. This is because a guarantor who guarantees repayment of housing loan is liable to repay the loan along with interest to the fullest extent, if the borrower defaults. The liability of the guarantor under Indian Contract Act is co-extensive with that of the borrower.

If the borrower has no repaying capacity or asset, it is open to the lender (housing finance companies) to proceed against the guarantor and his assts. Generally HFCs (lender) make the proceeding against both the guarantor and the borrower simultaneously.

This not all, the guarantor will have to shell out his personal information to the HFCs as they make credit investigation about the guarantor to assess his repaying capacity, source of income, proof of residence and so on before accepting him as a guarantor.

So be careful before you agree to act as a guarantor for someone. Be fully satisfied about the intention and repayment capacity of the person for whom you are acting as a guarantor or you may end up in trouble for being a Good Samaritan. As for the borrower, it is preferable to go to a HFC that does not demand a guarantor and there are quite a few in the market.