Lenders usually ask for a citizen if the borrower does not earn enough from the perspective of the banks, or if he has poor creditworthiness – that is, there have been defaults in the past, or simply the job in the new company is not long enough so that one could still speak of uncertain economic conditions.
Many banks see guarantees as a prerequisite for lending, according to the motto “If there is a citizen, the loan will be granted without a citizen – no credit”. After all, the banks don’t want to take risks – for them, surety provides security. But how does the guarantee affect borrowers and the citizens themselves?
Borrower and loan guarantee
If you have no problem finding a citizen, in most cases the borrower can only win. However, there is a drop of wormwood: Should it happen that the creditor cannot pay, the bank turns to the citizen. And since most citizens come from the closest family or friends, it can happen that these relationships are destroyed by a guarantee. Nobody likes to repay foreign debts, especially if it worsens their own financial situation. In this respect, you should always think twice about whom you take as a citizen.
Banks and loan guarantees
Guarantees provide collateral for the banks, which makes it easier or easier to grant loans. A citizen is asked relatively often, especially if it is a home loan or simply larger sums. If there is no citizen, no credit is often granted. Some banks offer alternative loans with higher interest rates or require the conclusion of several insurance policies, which should help in the event of default. However, such insurance is quite expensive, so that the monthly charges after it is taken out are quite high.
Guarantee and loan guarantee
Helping your best friend or letting your own wife fulfill your long-awaited wish and therefore signing a loan guarantee – for some, it goes without saying. In many cases, it goes quite well: you sign the guarantee, but the borrower pays back his loan so that you are virtually never confronted with the subject. Unfortunately, there are also enough cases where some have been driven into financial ruin. Because, as is well known, friendship ends with money.
Limit risks with a guarantee
If you want to sign the guarantee despite the known risks, then you should at least minimize the risks. This can limit the duration of the guarantee. If a loan is taken out for ten years, you can still insist that you only guarantee for three years. If the bank agrees, the guarantee expires after three years, even if the debt persists for another seven years. Furthermore, a guarantee can be terminated by a condition. However, this should be agreed before the contract is signed. Another option would be to find a surety.
Conclusion: A loan guarantee is often the only way for borrowers to get a loan. It is a risk business for the citizen. In the best case, you never hear anything from the bank after signing the guarantee – in the worst case, you repay the debt for years. So it is advisable to secure yourself well as a citizen by setting a condition or a deadline for the guarantor. If you have not done so, you have a right to refuse performance and, of course, a good lawyer to be able to do something about this right.