Legal liabilities of a personal loan with sibling

Legal liabilities of a personal loan with sibling

What are your legal loan liabilities if you vouched for a sibling

"Money is the source of all evil," as the old proverb goes. While family property conflicts are the most prevalent source of financial troubles among siblings, other issues can also occur. For example, if financial help in the form of loans, as well as shared assets, are not explicitly laid out in writing, signed agreements, they have the potential to sour relationships.

Your sister may ask you to be a guarantor for a house or personal loan in a transparent manner. On the other hand, there does not appear to be much of a problem. Still, you should study the lender's fine print covering loan repayment circumstances, liabilities in the event of non-payment, and other details before agreeing to the request. Before signing on the dotted line, be sure you've asked all pertinent questions and are well aware of your situation.

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What You Can Do If A Borrower Fails To Pay?

You can ask the bank to sell the asset you bought with the personal loan and give you the money. You can also rescue the asset by paying the dues. If you don't have the requisite funds, you may need to take out a loan. That, on the other hand, is the worst-case scenario. Before engaging in a guarantor arrangement, it's a good idea to be informed of the worst-case situation and determine whether you can stomach it. It's preferable to avoid such a circumstance unless you're very confident it won't happen again.

Will Your Credit Score Or Loan Eligibility Be Affected?

If you opt to be a financial guarantor, be aware that your credit score and loan status will be affected in the same way as your sibling's or friend's will. For example, if your sibling defaults on personal loan EMIs or makes late payments, it will appear on your credit record, putting a stumbling block in your path if you want to take out a loan later.

Also Read: A Step-By-Step Guide To Building A Strong Credit Score

In addition, the personal loan's amount will be set by the loan for which you are a guarantee. If you are a guarantor for a Rs 10 lakh personal loan and want to take out a Rs 40 lakh house loan, the bank will only grant you Rs 30 lakh because of your income restrictions. This would jeopardise your financial goals and connect with your brother or buddy. Nobody wants their financial condition or credit line to be jeopardised by someone else.

Future Loan Eligibility

Your loan eligibility is reduced when you agree to be a guarantor for someone. Because the obligation might be passed to you if the original borrower defaults if you're a guarantor for someone, the bank will usually restrict your eligibility to the amount of guarantee you've supplied. For more tips and tricks, click here.


Being a personal loan Guarantor entails taking responsibility for the debts of others. 

Also Read : Personal Loan or Credit Card Loan: Which One Should You Opt For And When?


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