The guarantee is always an issue in the credit system if the applicant does not fully meet the credit requirements. This is the case, for example, if the income is too low, no other collateral such as real estate or valuables can be lent or the Credit Bureau information leaves something to be desired.
Obligations resulting from a guarantee
For the bank or the credit institution, the guarantee provided by another person is protection against the credit default risk. The surety undertakes to repay the loan in the event of default by the borrower as the main debtor. He must also be economically capable of doing this, which is why a guarantee can only be given by people who have a sufficiently high income and whose creditworthiness is generally good. A negative Credit Bureau entry must not exist. In some cases, several people can undertake to act as guarantors, which can be required even with very high loan amounts, whereby each individual guarantor must also meet the requirements of the bank.
Guarantor versus co-applicant for the loan
A distinction must be made between guarantor and co-applicant for a loan. For example, if spouses submit a loan application together, each partner is the primary debtor to the bank. You are jointly and severally liable for the repayment of the loan. However, the guarantors only have to meet their obligation to repay when the principal debtor is no longer able to do so.
Both the guarantee and the application of several people increase the chances of getting a loan. However, the redemption risk is distributed differently. If two or more people apply for a loan together and everyone is registered as a debtor to the lender, then each co-applicant is obliged to pay at any time. For example, if the husband refuses payment for whatever reason, the wife is obliged to pay the bank without being asked to do so.
In practice, both variants must be carefully weighed up. The proverb: “Attached, caught” can be noted here, because everyone, whether guarantor or co-applicant, should be aware of the consequences of borrowing. Both options should never be tackled, because relationships can break, the credit and the obligation to repay remain.
Agreements between guarantor and borrower to repay money that the guarantor will make are advisable if the guarantor does not want to remain seated on his good nature. Agreements that make arrangements for improper payment by a party are also important among co-applicants.