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A loan with a guarantor increases the scope of personal financial opportunities. Nevertheless, a lot of caution should be exercised when it comes to guaranteeing loans. The article provides more information on the background and the advantages and disadvantages of a loan guarantee.
Credit with guarantor – backgrounds
A loan with a guarantor meets the lender’s wish to secure his investment as high as possible. The guarantee is usually for very high loan amounts. Couples, in particular, are repeatedly asked to vouch for one another. In addition, the guarantee is required if the applicant’s creditworthiness is not sufficient to grant a loan.
From the perspective of the lender and the borrower, there are many good reasons for a loan guarantee. The guarantee gives the borrower a significantly higher credit line. Loans that could not be approved based on the applicant’s own creditworthiness can now be granted. In addition, the borrower can often benefit from lower interest rates. The advantages for the lender can be summarized in one sentence. Two potential payers are responsible for the loan.
Guarantee credit from the guarantor’s point of view
A surety has no advantage from his guarantee. Without vouching for others, he is only liable for his personal interests. It should be borne in mind that the benefits to the borrower and lender can be to the detriment of the guarantor. The thought of providing a guarantee should therefore not be decided by gut feeling. The guarantor, symbolically speaking, places his fate in the hands of the borrower. A guarantee can only be considered if it is certain that the borrower is willing and able to pay in all circumstances.
The guarantor does not experience any direct disadvantages, initially not through the loan guarantee. If everything goes smoothly, the guarantor will be released by the lender at the end of the loan term. But the loan with guarantors can very quickly turn into a boomerang for the fellow citizens. If the borrower does not pay, the guarantor is liable with his private assets. Liability is not limited to the current balance. The guarantor is also charged for significantly higher risk interest rates and procedural costs.
In addition, the guarantee appears in the guarantor’s surety in the event of liability. This limits your own credit options.
Guidelines for loan guarantees
Couples building or buying a house together should share ownership of the house and liability for the loan. This can be done through a mutual guarantee, as a rule, the loan is applied for jointly.
A loan guarantee should only ever be taken out if the guarantor himself has indirect or direct advantages. To vouch for it because the son wants to buy a car that he can’t afford is sending the wrong signals. Everyone is responsible for themselves. If the bank does not agree without a guarantee, the creditworthiness is not sufficient. It only helps the classic saving, the waiver of consumption or the change of provider.
When changing providers, it is advisable to use a credit comparison. Many direct banks grant their loans without a guarantee. The guarantor loan should be limited to essential investments where the guarantor and borrower share the benefits.