Benefits and Drawbacks of Using a Guarantee with Cosigners: An Overview
A loan with a guarantor can be a viable option for individuals with poor creditworthiness. This article aims to provide a clear and concise guide on loans with guarantors, including their workings, requirements, and implications.
A guarantor for a loan is a German resident, of full age, with their own income, a German checking account, and good creditworthiness. They serve as a security for the bank, agreeing to cover missed loan installments if the borrower faces payment difficulties. The term 'surety' refers to this legally binding contract.
The process for applying for a loan with a guarantor is almost the same as for a loan without a guarantor. However, banks may require additional documents from the guarantor, such as copies of ID, proof of income, a completed self-disclosure form, SCHUFA information, and a guarantee agreement.
A guarantee results in a neutral SCHUFA entry for the guarantor, which initially has no impact on their own SCHUFA Score. However, if the borrower defaults, the guarantor bears a great responsibility and the entire risk of the loan.
Banks conduct a creditworthiness check during a loan application, assessing income, job security, and credit rating. If a borrower's creditworthiness is poor, the bank may reject the loan application. However, a surety increases the chances of obtaining a loan, even with a negative credit rating for the borrower.
Guarantees for loans come in various forms, including standby, global, guarantee on first demand, limited, and time guarantees. Examples of loans with sureties include wedding loans and mortgages.
It's important to note that a guarantee ends when the borrower repays the loan, when it would be contrary to public policy, if the guarantor inherits the debts of the borrower, or if all parties involved agree to a subsequent agreement. A guarantee cannot be canceled or revoked unilaterally.
Applying for a loan with a guarantor can strain the borrower's financial situation and the relationship between the debtor and the guarantor. Moreover, applying for a loan with a surety during an ongoing personal insolvency procedure has little chance of success.
In conclusion, a loan with a guarantor can be a valuable tool for individuals with poor creditworthiness. However, it's crucial to carefully consider the implications and responsibilities involved before making such a decision. Always check your financial situation, compare loan offers, and submit a loan application after thorough research and consultation.
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