Loan guarantor: what you owe if the borrower stops paying

Most people sign as guarantor as a favour – for a relative, a friend or a colleague. Then the EMIs stop and the bank starts calling you. Here is what the law says, what it does to your credit score, and what you can do now.

Updated 2026-10-28 · Funding Desk credit panel

What you signed up for

Under Section 128 of the Indian Contract Act, 1872, a guarantor owes the same as the borrower – principal, interest and charges – unless the guarantee deed limits it. The bank does not have to chase the borrower first. In August 2026 the Allahabad High Court said this again when it allowed a bank to recover a colleague's loan dues from two guarantors' salaries.

What it does to your credit report

• The loan you guaranteed shows on your own credit report, marked as a guarantee
• If the borrower misses EMIs, the overdue amount and default can show against you too
• When you apply for a loan yourself, lenders may count the guaranteed loan as a possible liability

What to do when the bank calls

1. Ask for the facts in writing – the loan statement, the overdue amount and any notices sent to the borrower.
2. Talk to the borrower. A short delay can often be fixed by paying the overdue EMIs or asking the bank to restructure.
3. Do not ignore notices. Reply in writing and keep copies.
4. If you pay, you can recover it. Once you pay, you take over the bank's rights against the borrower (Section 140) and can claim back what you paid (Section 145).
5. Report harassment. RBI rules do not allow recovery agents to call before 8 am or after 7 pm, or to threaten you. Complain to the bank, and then on cms.rbi.org.in if needed.

Can you get out of a guarantee?

• Continuing guarantee (for example on a cash credit limit): you can give the bank written notice to stop it for future lending (Section 130). You stay liable for what was already lent.
• Term loan: only if the bank agrees to release you – usually when the borrower gives a new guarantor or more security.
• Changed terms: if the bank changes the loan terms without your consent, you may be released for transactions after the change (Section 133). Get legal advice on your deed.

Before you sign as guarantor

• Read the deed and keep a copy of the sanction letter
• Mudra loans and loans covered by CGTMSE do not need a third-party guarantee – if a bank asks for one, ask why
• Only guarantee an amount you could repay yourself
• Ask the borrower to share the loan statement every few months

Common questions