When it comes to securing a private or consumer credit, numerous banks rely on the involvement of guarantors. The guarantee is in Germany a very popular and highly accepted loan security, which makes a desired borrowing possible in many situations in the first place. The following article deals with the topic “Loan with guarantor” and deals with many aspects that have to be considered by the borrower as well as by the guarantor.
The guarantee as collateral
The term “guarantee” basically refers to a one-sidedly binding contract that is concluded between the guarantor and the creditor of a third party. In the case of borrowing with a guarantee, the creditor is usually a bank or a credit institution, while the third person is held liable for which of the guarantor – the borrower. With regard to the scope of a guarantee, a distinction must generally be made between a so-called “default guarantee” and a “directly enforceable guarantee”. In principle, banks only recognize a guarantee if they feel that the guarantor can actually step in if the borrower is able to pay. For this it is of course important that the guarantor is always a solvent person with good creditworthiness and sufficient ability to service the capital. Bank guarantees are always required if the actual borrower is not or only partially creditworthy. This can happen, for example, to students, the unemployed or temporary workers who want to receive a loan.
What do you have to consider as a borrower?
As a borrower, you should note that you need a guarantor for the desired recognition of the guarantee, which is proven to be creditworthy and has a good credit rating in this regard. Frequently family members, such as parents or siblings, are chosen as guarantors, which means that as a borrower, of course, has the great responsibility to permanently take care of a smooth loan repayment. According to the well-known saying “With money stops the friendship” should urgently be avoided that the selected guarantor must appear actively and in addition, monetary transactions within the family can be once again particularly precarious. On the one hand, as a borrower, you may of course be glad that the selected guarantor is on hand for the desired loan commitment, but on the other hand, it should be morally clear that the helpfulness of the guarantor must under no circumstances be exploited.
These aspects are important to the guarantor
Anyone who is asked by a prospective loaner with credit problems, a good friend or family member, whether he takes over the guarantee for a desired credit agreement, should rethink his decision. Of course, the guarantee is in most cases of elementary importance for the loan commitment, but one must not forget that as a guarantor you make a big commitment. Guarantees should be taken over in this context only for third persons, which one can trust due to long-term experiences quasi “blindly”. As a guarantor one is responsible for payment problems of the debtor in the obligation to take over the monthly loan installment and in the case of an enforceable guarantee one is one hundred percent liable with one’s own private assets. As a guarantor, you should talk in detail with the borrower before you decide to take over the required guarantee contract. In a personal conversation, it is important to critically examine whether the borrower can even manage to meet the obligations of the loan agreement on a permanent basis.
Tips and tricks around borrowing with guarantors
If a borrower wants to apply for a loan and the bank demands the involvement of a guarantor, then one faces a difficult task. It is often not easy to find a friend or family member who agrees to take on someone else’s debt in the worst case scenario. Add to this the problem that for most people it is not easy to approach potential guarantors, to talk about their own financial situation and to admit that they would not get the required credit without help. Experience shows, however, that it is absolutely important that an open and honest exchange takes place between borrower and guarantor. Guarantees have often been the reason why a friendship breaks down or a good relationship between relatives breaks down. According to the motto “honesty lasts the longest”, it is important that the guarantor gets a fair chance at all to assess the risks of the guarantee he wants.
Conclusion: The guarantee is a popular credit security, which is often the basic requirement for banks to lend. In the case of a guarantee, a guarantee contract is concluded between the bank and a guarantor, who assumes the credit obligations in the event of the borrower’s insolvency. Legally, the guarantor thus becomes the debtor himself, which gives the bank a certain security. After all, the guarantor must be liable with his entire income and assets. In order to appear as a guarantor, you need an unlimited creditworthiness and a positive credit rating, which can easily be proven to the bank. Family members are most often chosen as guarantors, which in addition to the chance of the desired lending, but also brings the borrower great responsibility and risks.