Bangalore: Many individuals often undertake financial actions without watching out for consequences. Standing as a guarantor for loans taken by someone else is one such, reports Arnav Pandya, from mydigitalfc.com.

Banks or lending institutions require a guarantor before granting a loan when the value of assets kept as security against the loan is less than what is required by the bank or when there are no assets to offer as collateral.

In cases where the original borrower is unable or unwilling to repay the loan, the guarantor is responsible and bound to make the payment.

An individual cannot take the role of a guarantor lightly. Credit history is important for everybody. The first thing that an individual has to realize is that when he or she is standing as a guarantor, the details will end up being marked on their own credit score.

Trying to get away without making the payment on behalf of the original borrower will permanently and adversely affect the credit rating.

Even in situations where the original borrower has every intention of honoring the loan, the mere mention of the individual’s status as a guarantor on the Credit Record can impact the guarantor.

The record would be read by lenders who analyze potential liabilities. Every individual has some credit limit up to which banks and other financial institutions are willing to extend depending on various factors. It is very likely that banks will reduce the overall limit of loans that the individual can take based on the guarantor position that one has built up.