Often, when it comes to guaranteeing a loan, the personal guarantee of the loan automatically comes to mind, although there are other types of guarantee (own guarantee, government guarantee). In this text, we present all three forms of loan guarantee.
What is a personal loan guarantee?
A personal guarantee on a loan simply means that, in addition to the applicant, another person undertakes to repay the loan to the bank if the borrower himself / herself becomes unable to repay the loan.
Nowadays, personal guarantees for loans are less common than before people start to have more assets that can be used as collateral for the loan. Moreover, nowadays, personal guarantees are only eligible as collateral for small loans or as part of a large loan such as a mortgage.
Is a personal guarantee worth the loan?
Becoming a guarantor of a loan must always be carefully and carefully considered, and no one can recommend it without reservation. As a rule of thumb, one might say that it is worthwhile to agree to secure a loan only after careful consideration. You should only consider becoming a guarantor if you know how the person applying for the guarantee is managing his / her finances and if he / she believes that he / she will be able to repay the loan. The personal guarantee of a loan always carries the risk of inflammation between the guarantor and the borrower.
Alternatively, unsecured loans without a guarantor can be found in our comprehensive loan comparison.
Rights and obligations of the guarantor
If you become a guarantor of a loan, it is worth remembering that then you are really responsible for paying back the loan with all your property if the original borrower is unable to repay the loan.
The loan guarantor has the right to know the following before signing the guarantee agreement:
- Which debts are covered by the guarantor
- When can the debt be recovered from the guarantor
- Are there any other guarantees or pledges on the debt
- What is the debtor’s solvency
Once the loan has been secured, the guarantor has a statutory right to obtain from the bank, without the debtor’s permission, information on how the debtor will handle its debt. Thus, the guarantor can keep an eye on the risk of the guarantee, although providing this information requires the guarantor’s own activity, the banks do not automatically provide it.
Also remember the self-guarantee and the state guarantee
Nowadays, in addition to the traditional personal guarantee, you can get a loan or a state guarantee. You can buy your own guarantee from the bank where the loan was taken. A home guarantee provides additional security for both the bank and the consumer in the event that the mortgagee is unable to repay the loan or if the sale price of the home is insufficient to cover the outstanding debt. The insurance company provides the insurance and has the right to recover the amount paid to the bank from the borrower. It’s up to everyone to think about whether self-guarantee is really a viable option or just a bank’s way of financing customers.