On the one hand, many loans are now issued by the banks, ie without collateral. On the other hand, especially with higher loan amounts, the customer often has to provide collateral, such as a pledge of savings or a guarantee. A variant is the loan with guarantor, which is assigned as collateralized loan.
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When you apply for a loan, it usually depends on various factors, whether or not the lender wants to have collateral. In most cases, collateral is required if the loan amount is relatively high or your credit rating is not good enough to provide a blank loan.
Since most borrowers do not have large savings or securities deposits, often only the guarantee is eligible as security. The loan with guarantor is usually a installment loan. Because with the credit line, no collateral is normally required and a real estate loan is already secured by a mortgage or mortgage.
How does the loan work with guarantors?
The peculiarity of credit with a guarantee as collateral is that there are not two but three parties involved. And that is – as with any loan – the borrower and the bank as a lender. Then there is the guarantor.
The guarantor undertakes, through the guarantee, to “take over” the borrower’s debt in the event that the borrower can no longer pay his installments. In most cases, such a guarantee is a so-called sole liability guarantee. This means that the bank can immediately approach the guarantor if the loan installments are not paid, and does not first have to exhaust all legal remedies against the borrower.
What are the conditions for the loan with guarantee?
The main credit conditions, ie the interest rate, the term and the installment, do not generally differ from those of a loan without collateral in the case of a loan with a guarantor. Sometimes the guarantee can even have a positive effect on the interest rate, because after all, the risk of the bank is less by the existing guarantor than if the loan was granted as a blank loan.
On the other hand, the guarantee may also result in additional costs for the borrower, which may arise in the form of the guarantee commission (guarantee fee). However, not all banks charge these fees and also not in the same amount, so that a credit comparison can be worthwhile.