[RedTerrano]

A friend in need is a friend indeed eh?

Well, one Rajendra Raut was such a friend indeed. When his buddy Kiran Bhatlawande wanted to avail of a loan to purchase a car, he happily signed on the dotted line and stood guarantor. Little did he know he was signing his death warrant.

Loan disbursed, car delivered.
However, Kiran did not repay the EMIs.
Eventually the bank initiated legal action and Rajendra was shocked to get the court notice. Unable to believe what was happening, he took the matter to the police station.
Again, little did he know he was jumping out of the frying pan into the fire.

At the police station, API Dyandev Nikam and Hawaldar Sachin Barkade demanded moolah to keep him from getting arrested. Cherishing his freedom, Rajendra did cough up 7-8K but still the duo in Khaki continued to pester him for more.

Absolutely fed up, Rajendra contacted Kiran and after sharing the whole sad saga with his friend, begged him to repay the due loan amount.
Shockingly, Kiran in turn threatened to kill Rajendra.

All this was too much for Rajendra to cope up with. Seeing no other way out, he hung himself.

https://www.punekarnews.in/pune-two-...oan-guarantor/

I have never understood this bank policy.
Any vehicle purchased on a loan is hypothecated to the bank. In case of non repayment, they can repossess the vehicle and auction it off to recover the dues. Same is applicable to real estate as well.

When their monies are reasonably protected, why insist on an additional guarantor? Is it even legal?

[Shreyans_Jain]

This entire business of guarantor is messed up. Bank disburses loan after doing its own diligence and/or after keeping appropriate collateral. It is a business decision. They don’t share their profits with the guarantor but insist on sharing risk and liability with him.

Is the same system applicable in other more developed financial markets as well?

[GTO]

A terrible story. A life lost over a problem that could have been solved in many other ways.

I wouldn't ever guarantee anyone's loan, unless it was a blood relative and that too for a reasonable amount (not something exorbitant). Even with loans, I only give to my siblings when needed (we're damn close) and very, very close friends who have a track record of paying me back.

To everyone else who asks me for loans, I simply say "all my money is locked in investments".

[Capri89]

Generally banks don't ask for guarantors. In this case, probably, Kiran's financials was not satisfactory and hence they might have demanded. I don't know.

But Rajendra had legal means to protect himself. Very sad that he took this step.

Legal education should start at school level. High time.

[aargee]

Things aren't rosy even if you don't sign! Why? Here's what happened some 12+ years ago:

Colleague of mine (holding position equivalent to director in a large organization) borrows 25L (25 Lakhs) loan from ICICI, HDFC (primarily) & other banks. He casually mentioned to few of us stating there might be a call from the bank to verify if such & such person works here for which we only have to say YES & nothing else. Big deal eh? That too to state truth?

I remember getting a call once stating my name, phone number & a question whether such & such colleague works at so & so office for which I replied yes, which was true indeed. Fast forward some 2-3 years. This colleague becomes ex-colleague.

Another 2-3 years passby, one evening, as I prepared to leave office for the day, I get a call (these were pre Truecaller days) & the person identified himself as lawyer for ICICI, says I've signed as guarantor for the ex-colleague, identifies few of my details & asks me about his whereabouts. Frankly I didn't know what happened to him & said I don't know. But this "lawyer" guy repeatedly states I've signed despite protesting that I haven't signed & went to the extent of dragging to court stating I've signed. I simply hung the phone for that moment & went home little shaken.

Then after a week or so, same type of incident, but this time its HDFC, not a lawyer, but call center folks asking for his whereabouts & stating the colleague has given my name as alternative contact!! This time, no arguments, told them firmly I don't remember to have signed anything & I'm not responsible for it & simply hung the phone.

This time went to meet other colleagues, told them my sad situation & asked them a solution!! It was shocking to see everyone were laughing loud because it seems every single known colleague who had been associated with the ex-colleague had got calls from ICICI, HDFC & several other banks with all of them with identical pattern. It seemed that these banks were trying hard to recover whatever they could with whomsoever this ex-colleague had shared the contact number. They adviced me not to take it seriously as long as I haven't signed anything.

Such calls went for another 2 more years & thanks to Truecaller through which I was able to block many of such unwanted calls at uncalled times daunting as early as 7:30 in the morning to as late as 9:00 Pm at night.

[CarNerd]

Found a link about Loan Guarantor Risks: https://m.economictimes.com/wealth/b...w/76713787.cms

Loan Guarantor is essentially a Bakra who submits himself to bank for sacrifice when Loanee (borrower) fails to pay. In short there is one way to reduce the risk - By not becoming a guarantor ever! According to the Indian Contract Act, the guarantor has the right to recover the money later from the borrower. But I don't think one can do that without spending enough time & money in courts. RBI should come up with measures to prevent such terrible incidents.

[.sushilkumar]

Originally Posted by aargee

He casually mentioned to few of us stating there might be a call from the bank to verify if such & such person works here for which we only have to say YES & nothing else. Big deal eh? That too to state truth?

Exactly this happened with me as well. Thankfully, I was in touch with colleague and told him in no certain terms to close the matter. Apparently, Loan fellas were not willing to close the loan asking for some random charges and he filled a FIR against them for harassment despite paying the loan fully.Thankfully, FIR did the trick and there were no further calls.

One thing i oberved is that this is more prevelent with these newly mushroomed App based loan companies than traditional banks. As GTO said, avoid standing guarantor untill you really trust the person and have very close relations.

[shankar.balan]

Originally Posted by GTO

A terrible story. A life lost over a problem that could have been solved in many other ways.
.

“Neither a Borrower, nor a Lender be. For loan oft loses both itself and friend. And borrower dulls the edge of husbandry.”

Very wise words from Shakespeare’s Hamlet. As applicable now, as they were then, 600 years ago.

Easy credit has become the lifeblood of consumption. And consumption is being force-induced subliminally onto the unsuspecting consumers, through a barrage of media blitzes and information overload.

Over time, it starts feeding upon its own lifeblood, thus sending the unwary, down the slippery slope of eternal debt from which there is no return.

[vivekkp]

Originally Posted by aargee

Then after a week or so, same type of incident, but this time its HDFC, not a lawyer, but call center folks asking for his whereabouts & stating the colleague has given my name as alternative contact!!

This is a nightmare. By any chance do you know if your CIBIL rating was affected because of this episode?

[naru80]

I have experienced this guarantor business first hand.

It was around 2010. I wanted to buy a flat in Noida. Those were the days before RERA and credit scores. There was a lot of uncertainty around land deeds/titles amid claims by farmers that they had not received adequate compensation. Rahul Gandhi went to Bhatta Parsaul and sat on a dharna to show support.

Amid all this i found a property in Noida that seemed promising. I went to the head office of the developer. Unlike other developers, the CEO here was willing to talk to prospective buyers. He personally showed the deed, title, payments and the Noida Authority approvals.

Having satisfied myself that the builder and the project were genuine, I went ahead and paid the booking amount.

Then came the loan ordeal.

Since there was a lot of uncertainty around Noida projects, most banks/lenders had stopped extending loans for them. For my chosen project, only IDBI was willing to finance. They asked for the usual IT returns and bank statements and salary slips. Their executive visited both my home and my office for verification. And my loan was approved.

But there was a rider: they needed a guarantor.

So i said sure, and one of my friends stepped up.

But IDBI said no: The guarantor must own a property in his name.

So i got another friend who did.

But IDBI again said no: The guarantor's property must be worth more than the loan size.

So i got a third friend who owned a house in Chandigarh.

IDBI again said no: The guarantor's property must be in Delhi NCR.

Mind you, all these rules were nowhere in the form/website/T&C. This was the branch manager making them up as we went along.

Since i was still in my 20s most of my close friends whom i could approach didn't meet all these conditions. I almost gave up on the property.

Fortunately, i had a bindaas coworker, who when she found out about my predicament, told me she met all the criterion and signed the loan docs without even reading the fine print.

The loan was disbursed! I took her out for a drink as a thank you.

I sold off the property and cleared off the loan just a couple of years later when the Bhatta Parasaul dust settled and prices zoomed.

I have lost touch with my guarantor since then. But after reading this I'm now going to look her up and take her out for another thank you treat.

[humyum]

So since I was looking for a car loan and I was trying my luck with smaller banks to see if they would want to get business by offering lower rate of interests for car loans.

I approached Thane District Central Co-Operative Bank which had a small branch in Ghatkopar. They were offering a loan at 7.5 when everyone was offering the same at 8, but the rider, they need a guarantor. Their branch was as empty as a mall which is shut, not one customer in sight and a few employees that's all.

I flatly said no, I will not get any guarantors, if they want to give a loan, it will be through documents and verification like what usual banks do, no one is going to be asked to be a guarantor.

He refused, I refused and I ultimately got one at 7.95 but that's ok, this is one favor I won't ask anyone.

[aargee]

Originally Posted by shankar.balan

Easy credit has become the lifeblood of consumption. And consumption is being force-induced subliminally onto the unsuspecting consumers, through a barrage of media blitzes and information overload

Over time, it starts feeding upon its own lifeblood, thus sending the unwary, down the slippery slope of eternal debt from which there is no return.

Originally Posted by .sushilkumar

One thing i oberved is that this is more prevelent with these newly mushroomed App based loan companies than traditional banks

Apparently I got to hear the other side of these "app loans" (micro finance) through podcast or some YT videos; here's the summary of the justification for these loans

Santaram is a hardworker in construction on daily wages; he wishes to have 15K for educating his Daughter in computers so as she can get a decent job in IT with a handsome figure of 15K monthly. Problem is, no one is willing to give him a loan so that families like Santaram stays poor forever.

So these micro finances help him obtain 15K loan through which his Daughter gets educated & bags a job so that she can repay the loan in 18-24 months. Although it sounds rosy, there're 100 IFs between the disbursement of loan until the point his Daughter repays the loan.

And where do these microfinances obtain money? Some of them from lakhs of investors who invest in 1000s every month. So these micro finances are kind of aggregators with not all that money but with pooled money. Old chit fund logic in new avatar!!

I'm awaiting to see what happens to that bubble on micro finances!!

Originally Posted by vivekkp

This is a nightmare. By any chance do you know if your CIBIL rating was affected because of this episode?

Nope; took a car loan in 2017 & SBI reduced the interest rate by 0.5% than promised citing my CIBIL score was good.

Srilanka & Pakistan seem to smile at me when I write this; I'm reminded of Japan in the 50s as borrower turned into lender in later years (and again into a borrowed by 90s is a story for another day). Point is, loans are all not that bad, sometimes it turns unfortunate due to bad decisions; reminds me of people taking huge loans in 2005/06/07 (which was the same case until early 1929) to invest in stock market. Some borrowers did invest from 2005 & did make millions before the meltdown, but most of them didn't.

[thanixravindran]

Originally Posted by RedTerrano

I have never understood this bank policy.
Any vehicle purchased on a loan is hypothecated to the bank. In case of non repayment, they can repossess the vehicle and auction it off to recover the dues. Same is applicable to real estate as well.

When their monies are reasonably protected, why insist on an additional guarantor? Is it even legal?

Really tragic. Lesson is be wise in choosing your friends.

Now coming to your question, for banks lending is primary business. So they will always calculate based on the total outstanding - Principal + Interest in any loans. And they always want to minimize their cost of recovery of a bad loan because it will directly impact their margins and balance sheet at larger level. With the advent of 100% On Road funding, even if the bank possess the car, they may never get their full money back forget about interest as vehicle is depreciating asset. And the formalities to possess and auction will make it even more losing proposition. Please note Banks still cry a lot about the No prepayment penalty on Home loans as mandated by RBI as it gets their cash flow and revenue projections go awry.

Now coming to the guarantor part, it is part of their Risk management policy and procedure. More the risks, more they try to protect with these additional safeguards. It is essentially giving out sub prime loans by betting on credit growth but at the same time try to minimize the damage. What I have seen is, they ask it mainly for a first time borrower without having any assets and for depreciating assets like vehicle loans for non salaried/stable income person or business loans and is quite common in semi urban and rural areas. Very rarely Banks do it for home loans but NBFCs do it regularly.

[UD17]

Originally Posted by RedTerrano

I have never understood this bank policy.
Is it even legal?

Indian contract act specially define the Guarantee, the obligation of Guarantor. If you have given guarantee on your behalf be ready to perform your side of obligation, its perfectly legal.

Due to the lack of knowledge, Mr. Rajendra faced the consequences. He would have never imagined the consequences or legal aspect of his guarantee.

If one want to keep good terms with friend and decide to sign on dotted lines, then one caution one may take is to define the amount of your guarantee based on your capabilities to pay (in case of default). Once my friend asked me to acts as a guarantor, for his home loan i specified him that i want to help him but could guarantee for maximum 1 lakh. The remaining guarantee he has to manage with other friends. He was not upset with me but I guess he had taken sign from some other friend on those papers. The financial dealings within friends make things so complicated yet sometimes we had to help people in need.

[ts75]

Terrible indeed that someone has to commit suicide for being a guarantor.

I believe in the following:
1. No guarantee to anyone.
2. If anyone needs help, give what is possible upfront as personal loan without expecting it to be returned back. Whatever comes back is treated like a bonus. This way, relationship does not get spoilt.
3. I may still have a scenario where I have to give guarantee for my children / siblings / parents. I will sign only if I can mentally assure myself that I am capable of repaying the entire amount in the event of default. In short, I will think of it as my own liability and periodically check if the repayment is on track. If any default, I should be in a position to repay before compounding interest and penal implications kick in and the loan amount becomes unmanageable. After all, mental peace and sleep are more important.