It happens quite often that the granting of a loan depends on whether there is a loan guarantee or not. But what does it mean to take out a loan with a guarantor? Can the loan guarantee be canceled – and if so, how does it work? These and other important questions are answered in the following article.
What does loan guarantee actually mean?
A credit guarantee is an independent additional agreement in a contract between the lender of a loan and a third party that is selected by the borrower. This third person is the so-called guarantor who makes the loan with guarantors possible in the first place. The guarantor is liable together with the borrower for the timely and full repayment of the loan. This means that the lender has two debtors in a loan guarantee: the borrower himself and the citizen. One of the parties can only be relieved by canceling the loan guarantee.
These are the requirements for a loan with a guarantor
In principle, any private person can become an official guarantor for a loan guarantee. As a rule, private individuals are only used if the sums involved are relatively small. However, it does not depend on the amount of the loan whether a specific guarantor is accepted by the lender, but on whether the citizen has the appropriate financial means and security.
Alternatively, the public sector can also be used as a guarantor. However, this is usually only the case when it comes to a loan for start-ups and the guarantor results from a corresponding funding program. The lender is usually a public law promotional bank that accepts the loan guarantee.
The following framework conditions for the loan guarantee should be fulfilled:
- Signature and consent of the guarantor, borrower and lender
- Citizens have enough collateral
- all participants are of legal age
- Lender accepts the guarantor
- Trust relationship between guarantor and borrower
The different forms of loan guarantees
There are various special forms of credit guarantee that have largely replaced the ordinary guarantee contract. This includes the so-called joint and several guarantee and the guarantee on first request. In the first case, the guarantor does not object to the preliminary action. This means that the lender is not obliged to enforce the current debtor first. Instead, the lender can call the guarantor directly if the claims are not settled.
The loan with guarantor on first order makes it possible for the creditor to be able to demand immediate payment from the guarantor. If the contract is valid, the guarantor must pay the amount requested – regardless of whether there are objections or objections.
In these cases, the loan with guarantor is required
A credit guarantee is required in the following special life situations to enable the debtor to obtain a loan:
- Renting an apartment through students or vocational students
- Allow taking out a loan despite “creditworthiness”
- Borrowers have enough of their own funds, but they are not recognized
In the above cases, a loan should only be guaranteed if the guarantor knows about the financial situation of the borrower and there is a corresponding relationship of trust. Often it is relatives or friends where there is already a close relationship.
You should pay attention to this in the guarantee
Generally, a loan guarantee entails certain risks. However, these can be minimized with the appropriate measures and some prior knowledge. If, on the other hand, the loan guarantee is prematurely concluded, the existence of both the guarantor and the debtor may be threatened. As a rule, waiving certain rights is accompanied by an increase in risk. Even if the time or financial pressure is high, you should consider carefully whether you agree to a so-called joint and several guarantee. Here you are deprived of any protection in the role of guarantor and you are treated like a second main debtor in an emergency.
You should also try to minimize the contractual risk as much as possible. If the situation permits, you should try to negotiate with the lender regarding various contractual clauses. Here, the definition of a maximum liability amount or a time limit for the guarantor’s liability is appropriate.
Loan guarantees cannot be canceled easily
It is not possible to terminate a credit guarantee if the termination is given unilaterally. In general, the loan can only be terminated by a guarantor if it is an immoral guarantee. Otherwise, the guarantee can either be limited in time or financially – however, this should be regulated in advance.
In general, it is highly recommended to get advice from a specialist before signing a contract. The latter can also carry out an adequate risk assessment. Here you can go to a lawyer or to debt counseling. Because you cannot easily get out of an existing contract, specialist knowledge is required.