Tight financial scope, which a borrower can only counter with additional collateral for the bank. The loan with a guarantor is one way of creating this security. The contribution deals with the advantages and disadvantages of the guarantee. Alternatives are also pointed out.
The loan with guarantor – advantages and disadvantages
The main advantage of a guarantor loan is with the lender. It is the additional security of his investment through the guarantee. Instead of just one person, two people are now liable for the entire loan, independently of one another. The surety’s liability extends to possible additional costs for coercive measures. But not only the lender, but also the borrower can benefit from the guarantee. Higher loan amounts than they could actually be financed with their own creditworthiness enables the guarantor to assume liability. In addition, a small interest advantage can jump out for him due to the additional security.
A borrower only has disadvantages in terms of moral responsibility towards its guarantor. The only disadvantage is the guarantor. Without having the slightest benefit from the loan, he is fully liable. He has no entitlement to part of the loan amount or influence on its use. A guarantee should only be given to someone who is aware of the risk. He should also have sufficient funds to pay off the loan if necessary.
Alternatives to guarantees.
The best way to avoid a guarantee is to change providers. Not all credit institutions only grant loans with guarantors. Additional collateral is often not required. The lenders set their own rules within the legal framework. What exactly these regulations look like is the business policy of the respective institute and is not always publicly understandable.
Real assets can also be used in place of a guarantor to secure the loan. Some institutes prefer the vehicle-Brief as credit protection, others prefer a capital-building life insurance. Another good alternative to sureties is that offered by private loans. Private investors rarely require a guarantee. Different rules apply to lending to them. Security is welcome, but first and foremost they want to be able to trust. If you can build this trust, you can also avoid the loan with guarantors and refinance yourself privately.