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If you want to borrow a large amount of money, it may be easier to do it not alone, but to find a co-borrower, or even several. We figure out who the co-borrower is, how to get a loan with his help and how he differs from the guarantor.
Who is the co-borrower and how does he differ from the guarantor?
Taking a loan with a co-borrower means taking it together or three, or even five. Moreover, all co-borrowers are responsible to the bank on equal terms.
For example, you have a small farm. You agreed with your neighboring farmers to take a joint loan and buy a new tractor, which you will use in turn.
The bank does not care which of you will make the monthly loan payment and how you divide it among yourself. If the next installment is not received on time, the bank has the right to demand the entire amount of the payment from any of the co-borrowers of its choice. And most often - from all at once.
Co-borrowers are often confused with guarantors, but their rights and responsibilities differ. More details about this can be found in the material "What is the difference between a co-borrower and a surety".
If the loan is large, then both co-borrowers and guarantors can be involved at the same time. And if the borrower misses the loan payment, the co-borrower will have to deposit the money. If he does not pay, the debt will go to the surety.
In what situations are co-borrowers needed?
It is beneficial for banks when several co-borrowers take out one loan at once: the more people are responsible for the loan, the more guarantees that they will return the money.
Most often, co-borrowers are involved in three cases:
1) to increase the amount of monthly income - this is an important indicator for the bank. The higher the income, the greater the possible loan amount.
For example, John's salary is $ 500 a month. This is not enough for the bank to issue the necessary amount of money for the mortgage. Then John brings his wife Anna into the business, her monthly income is $ 400. It turns out that their total income is $ 900, which is already quite satisfactory for the bank.
2) to get a loan to start a business. If an entrepreneur has a partner (or partners) and they open a business together, they can take a loan together - as co-borrowers;
3) to take an educational or student loan. Some banks have loans with special conditions for young people - for the first home or study. In such cases, for the borrower, part of the debt or even the entire debt can be paid by the co-borrowers - the parents.
What rights and obligations does the co-borrower have?
Each bank has its own requirements for a co-borrower, but most often it must:
- be a citizen of your cuntry;
- reach a certain age - for example, 18, 21 or 25 years;
- have a permanent place of work and work experience in one company for at least six months;
- have a good credit history;
- to be a relative or spouse of the borrower (however, this is not a mandatory requirement).
With a mortgage, the co-borrower can be the borrower's spouse, even if he or she does not officially work. In such cases, banks are more willing to give loans and often offer a lower interest rate.
The main thing is to remember that real estate bought in marriage is considered jointly acquired property. And it doesn't matter who it was issued to. By default, spouses are entitled to half of the property.
But if, for example, a husband took out a mortgage loan for himself, and then stopped paying on it, the bank has the right to take the whole apartment and sell it. The wife, although she has the right to half of this housing, will also lose it. If she wants to keep this apartment, she will have to take on the debt of her husband and pay off the loan for him. Therefore, it is better to immediately register yourself as a co-borrower in the contract.
If the husband and wife do not want to share the rights to housing, they can conclude a marriage contract and prescribe the conditions there. In this case, the mortgage is usually taken by the spouse to whom the property will be registered.
Large loans are usually insured. If a person got a disability or lost the ability to work, the insurance company will pay off his debt in full. In the event of death, too. In this case, the rights to the apartment (or something else for which they took a loan) will be transferred to the remaining parties to the agreement and those who are listed as the heir.
How to get a loan with a co-borrower?
If you need a large amount of money, then the co-borrower can increase your chances of getting a loan and at the same time count on more favorable conditions. Let's figure out how to use it.
1. Compare the offers of different banks for loans and choose the appropriate options. Check the terms and conditions for co-borrowers. As a rule, they can become adults with a permanent job and work experience.
2. Decide how many people you need to collect the required monthly income. Let's say the bank has made a preliminary calculation for you, according to which your income should be about $ 1800. Your income is $ 1500. It is necessary for the co-borrower to confirm income of at least $ 300.
3. It is necessary to decide in advance how you will divide the payments on the loan with the co-borrower: equally, in some shares, or the co-borrower will start paying only when for some reason you yourself stop doing it.
Agreements need to be formalized in the form of an agreement on mutual obligations. For the bank, this agreement does not matter: if the loan payments are delayed, it will require all co-borrowers to repay the debt in full. But it will help you restore justice if the case, for example, goes to court.
Let's say you and a friend decided to start a business and agreed to pay the loan in half, but for some reason he stopped doing it. Then you have to pay off the debt for two. But then, based on the commitment agreement, you can claim a portion of the payment from the friend.
4. Prepare a package of documents of the borrower and co-borrower to submit them to the bank. Usually, you need the same documents as for any other loan: a copy of your passport and work record book, a certificate or in the form of a bank.
5. Take out insurance - it will help pay off the loan in case of job loss, accident or other unforeseen circumstances.
Can the terms of the contract be revised?
The terms of the loan agreement, in which the borrower and co-borrower participate, can be changed only if the agreement provides for it. If the co-borrower wants to withdraw from the contract, most likely a replacement will be required - a new co-borrower.
To revise the agreement, there must be weighty conditions, for example, a divorce, because when issuing a loan, the bank took into account the income of the co-borrower. But, as a rule, the decision remains with the bank.
When changing the agreement, the borrower, the former co-borrower, the new co-borrower and the bank representative must be present. In this case, an additional agreement to the contract is signed.
What if I was offered to become a co-borrower?
A loan for a large amount is most often a history for years, so it is worth weighing all the risks and foreseeing possible changes. What dangers can a co-borrower face? Let's consider the most common situations.
It is difficult for a co-borrower to take a new loan
Example. Steve supported his brother Artyom and became a co-borrower on a mortgage loan. Two years later, Steve was going to build a dacha, and decided to take out a loan for the purchase of land and construction. Although Steve's solvency is sufficient and his monthly income covers two loans, the bank was wary of this situation and did not issue a loan. Perhaps another bank will be more loyal and agree to lend to Steve. But there is a risk that Steve will not be able to take a second loan until Bob's mortgage is repaid.
The co-borrower is obliged to pay, even if the situation has changed and he is no longer interested in the loan
Example. John and Anna live in a civil marriage. They recently had a baby. Anna does not work and does not receive maternity payments, and John, the owner of a small trucking company, decides that he needs to expand his business. To take out a loan for equipment, he does not have enough income. Anna's father, Tom, helps him with this. He becomes a co-borrower, but the equipment under the contract is drawn up only for John - he will work on it, not Tom. A year later, John and Anna get divorced, but Tom is still obliged to pay for equipment, to which he does not even have a license. If the agreement contained the same rights, or if the men signed an agreement on mutual obligations, this situation could have been avoided.
The co-borrower, even if he became one purely formally and did not prepare for expenses, will have to be responsible for the debts of the borrower
Example. Inna and Irina are friends from school. For her 30th birthday, Inna decided to buy herself a new car, albeit on credit. Ira could not refuse her friend and became a co-borrower - the bank, issuing a loan, took into account her income. In the contract, the girls recorded that Inna was paying the loan, and that it would affect Irina only if Inna stopped paying. No one expected such a turn, but after a year and a half Inna lost her job, and it became difficult for her to find money every month to pay off the loan. Instead of explaining everything to Ira and finding a solution together, she simply stopped communicating with her. Ira had to repay the loan herself for several months. As a result, Inna repaid the loan, but the relationship with her friend deteriorated.
Before becoming a co-borrower, ask yourself the question: "Am I ready to repay the loan in full for a friend / brother / godfather / matchmaker?" The co-borrower is not just your signature in the agreement, but the real responsibility for someone else's debt.
If you do decide, do a few things before concluding a loan agreement:
1. Discuss in detail with the borrower the points that relate to the timing, amount and circumstances of repayment. Record the agreement in writing in a mutual commitment agreement.
2. Carefully study the loan agreement itself. Understand all the conditions and do not sign until all its points become very clear for you. And of course, first check if the selected bank has a license from the Bank.
3. Take out insurance for yourself and convince the main borrower to do so. This will save both of you in the event of force majeure - illness or job loss.
Who is the co-borrower and how does he differ from the guarantor?
Taking a loan with a co-borrower means taking it together or three, or even five. Moreover, all co-borrowers are responsible to the bank on equal terms.
For example, you have a small farm. You agreed with your neighboring farmers to take a joint loan and buy a new tractor, which you will use in turn.
The bank does not care which of you will make the monthly loan payment and how you divide it among yourself. If the next installment is not received on time, the bank has the right to demand the entire amount of the payment from any of the co-borrowers of its choice. And most often - from all at once.
Co-borrowers are often confused with guarantors, but their rights and responsibilities differ. More details about this can be found in the material "What is the difference between a co-borrower and a surety".
If the loan is large, then both co-borrowers and guarantors can be involved at the same time. And if the borrower misses the loan payment, the co-borrower will have to deposit the money. If he does not pay, the debt will go to the surety.
In what situations are co-borrowers needed?
It is beneficial for banks when several co-borrowers take out one loan at once: the more people are responsible for the loan, the more guarantees that they will return the money.
Most often, co-borrowers are involved in three cases:
1) to increase the amount of monthly income - this is an important indicator for the bank. The higher the income, the greater the possible loan amount.
For example, John's salary is $ 500 a month. This is not enough for the bank to issue the necessary amount of money for the mortgage. Then John brings his wife Anna into the business, her monthly income is $ 400. It turns out that their total income is $ 900, which is already quite satisfactory for the bank.
2) to get a loan to start a business. If an entrepreneur has a partner (or partners) and they open a business together, they can take a loan together - as co-borrowers;
3) to take an educational or student loan. Some banks have loans with special conditions for young people - for the first home or study. In such cases, for the borrower, part of the debt or even the entire debt can be paid by the co-borrowers - the parents.
What rights and obligations does the co-borrower have?
Each bank has its own requirements for a co-borrower, but most often it must:
- be a citizen of your cuntry;
- reach a certain age - for example, 18, 21 or 25 years;
- have a permanent place of work and work experience in one company for at least six months;
- have a good credit history;
- to be a relative or spouse of the borrower (however, this is not a mandatory requirement).
With a mortgage, the co-borrower can be the borrower's spouse, even if he or she does not officially work. In such cases, banks are more willing to give loans and often offer a lower interest rate.
The main thing is to remember that real estate bought in marriage is considered jointly acquired property. And it doesn't matter who it was issued to. By default, spouses are entitled to half of the property.
But if, for example, a husband took out a mortgage loan for himself, and then stopped paying on it, the bank has the right to take the whole apartment and sell it. The wife, although she has the right to half of this housing, will also lose it. If she wants to keep this apartment, she will have to take on the debt of her husband and pay off the loan for him. Therefore, it is better to immediately register yourself as a co-borrower in the contract.
If the husband and wife do not want to share the rights to housing, they can conclude a marriage contract and prescribe the conditions there. In this case, the mortgage is usually taken by the spouse to whom the property will be registered.
Large loans are usually insured. If a person got a disability or lost the ability to work, the insurance company will pay off his debt in full. In the event of death, too. In this case, the rights to the apartment (or something else for which they took a loan) will be transferred to the remaining parties to the agreement and those who are listed as the heir.
How to get a loan with a co-borrower?
If you need a large amount of money, then the co-borrower can increase your chances of getting a loan and at the same time count on more favorable conditions. Let's figure out how to use it.
1. Compare the offers of different banks for loans and choose the appropriate options. Check the terms and conditions for co-borrowers. As a rule, they can become adults with a permanent job and work experience.
2. Decide how many people you need to collect the required monthly income. Let's say the bank has made a preliminary calculation for you, according to which your income should be about $ 1800. Your income is $ 1500. It is necessary for the co-borrower to confirm income of at least $ 300.
3. It is necessary to decide in advance how you will divide the payments on the loan with the co-borrower: equally, in some shares, or the co-borrower will start paying only when for some reason you yourself stop doing it.
Agreements need to be formalized in the form of an agreement on mutual obligations. For the bank, this agreement does not matter: if the loan payments are delayed, it will require all co-borrowers to repay the debt in full. But it will help you restore justice if the case, for example, goes to court.
Let's say you and a friend decided to start a business and agreed to pay the loan in half, but for some reason he stopped doing it. Then you have to pay off the debt for two. But then, based on the commitment agreement, you can claim a portion of the payment from the friend.
4. Prepare a package of documents of the borrower and co-borrower to submit them to the bank. Usually, you need the same documents as for any other loan: a copy of your passport and work record book, a certificate or in the form of a bank.
5. Take out insurance - it will help pay off the loan in case of job loss, accident or other unforeseen circumstances.
Can the terms of the contract be revised?
The terms of the loan agreement, in which the borrower and co-borrower participate, can be changed only if the agreement provides for it. If the co-borrower wants to withdraw from the contract, most likely a replacement will be required - a new co-borrower.
To revise the agreement, there must be weighty conditions, for example, a divorce, because when issuing a loan, the bank took into account the income of the co-borrower. But, as a rule, the decision remains with the bank.
When changing the agreement, the borrower, the former co-borrower, the new co-borrower and the bank representative must be present. In this case, an additional agreement to the contract is signed.
What if I was offered to become a co-borrower?
A loan for a large amount is most often a history for years, so it is worth weighing all the risks and foreseeing possible changes. What dangers can a co-borrower face? Let's consider the most common situations.
It is difficult for a co-borrower to take a new loan
Example. Steve supported his brother Artyom and became a co-borrower on a mortgage loan. Two years later, Steve was going to build a dacha, and decided to take out a loan for the purchase of land and construction. Although Steve's solvency is sufficient and his monthly income covers two loans, the bank was wary of this situation and did not issue a loan. Perhaps another bank will be more loyal and agree to lend to Steve. But there is a risk that Steve will not be able to take a second loan until Bob's mortgage is repaid.
The co-borrower is obliged to pay, even if the situation has changed and he is no longer interested in the loan
Example. John and Anna live in a civil marriage. They recently had a baby. Anna does not work and does not receive maternity payments, and John, the owner of a small trucking company, decides that he needs to expand his business. To take out a loan for equipment, he does not have enough income. Anna's father, Tom, helps him with this. He becomes a co-borrower, but the equipment under the contract is drawn up only for John - he will work on it, not Tom. A year later, John and Anna get divorced, but Tom is still obliged to pay for equipment, to which he does not even have a license. If the agreement contained the same rights, or if the men signed an agreement on mutual obligations, this situation could have been avoided.
The co-borrower, even if he became one purely formally and did not prepare for expenses, will have to be responsible for the debts of the borrower
Example. Inna and Irina are friends from school. For her 30th birthday, Inna decided to buy herself a new car, albeit on credit. Ira could not refuse her friend and became a co-borrower - the bank, issuing a loan, took into account her income. In the contract, the girls recorded that Inna was paying the loan, and that it would affect Irina only if Inna stopped paying. No one expected such a turn, but after a year and a half Inna lost her job, and it became difficult for her to find money every month to pay off the loan. Instead of explaining everything to Ira and finding a solution together, she simply stopped communicating with her. Ira had to repay the loan herself for several months. As a result, Inna repaid the loan, but the relationship with her friend deteriorated.
Before becoming a co-borrower, ask yourself the question: "Am I ready to repay the loan in full for a friend / brother / godfather / matchmaker?" The co-borrower is not just your signature in the agreement, but the real responsibility for someone else's debt.
If you do decide, do a few things before concluding a loan agreement:
1. Discuss in detail with the borrower the points that relate to the timing, amount and circumstances of repayment. Record the agreement in writing in a mutual commitment agreement.
2. Carefully study the loan agreement itself. Understand all the conditions and do not sign until all its points become very clear for you. And of course, first check if the selected bank has a license from the Bank.
3. Take out insurance for yourself and convince the main borrower to do so. This will save both of you in the event of force majeure - illness or job loss.