Father
Professional
- Messages
- 2,602
- Reaction score
- 798
- Points
- 113
You want to take out a loan, but the bank thinks that your income is not enough, and offers to attract a co-borrower or guarantor. Or vice versa: you are asked to become a co-borrower or vouch for someone else's loan. Let's figure out what the differences are and what you risk by agreeing to a particular role.
What is the difference between a co-borrower and a guarantor?
The co-borrower is the same borrower. He has the same rights and obligations as if he took out a loan himself. Even when you are persuaded to sign an agreement only "for show" and it is not you who will use the credit money, you bear a great responsibility. If the main borrower for some reason cannot pay the loan on time, the co-borrower will have to pay the money.
The guarantor vouches for the borrower - guarantees the bank that the loan will be repaid within the agreed period. The guarantor is not obliged to follow the borrower's payment schedule. If he is late with the payment for a couple of days, this does not threaten the guarantor. But if the delay is serious, the bank will present claims to the guarantor - and then the debt will be reflected in its credit history.
For large loans, both co-borrowers and guarantors can be attracted at the same time. If the borrower stops paying, the co-borrower will have to repay the debt. If he also does not make payments, then the guarantor will have to pay.
Let us consider in more detail how the requirements for co-borrowers and guarantors differ, their capabilities and responsibilities.
What documents do I need to provide?
Usually, the co-borrower must provide the bank with the same set of documents as the borrower: passport, SNN or TIN, marriage certificate, income statement, certified copy of the work book. Each bank may have its own set of documents.
Sometimes the list of documents for the borrower and co-borrower may differ. For example, under a family mortgage program, the main borrower must provide birth certificates for the children, and the co-borrower does not need to do so.
In most cases, the guarantor must provide only a passport, income statement and a certified copy of the work book.
The co-borrower signs the loan agreement with the borrower, but the guarantor does not. The bank concludes a separate surety agreement with him.
If the loan agreement provides for the mandatory registration of insurance, then the co-borrower will also have to sign the insurance agreement. This is usually not required from the guarantor.
Is it possible with the help of guarantors and co-borrowers to change the loan size and interest rate?
The financial position and credit history of the co-borrower directly affect the terms of the loan. The bank checks the co-borrower in the same way as the borrower: place and length of service, income, financial discipline. The amount of the loan, the percentage and the period for which it is issued may depend on the results of the check.
As a rule, the higher the income of the co-borrower, the more the bank is willing to lend. If the financial position of the co-borrower inspires confidence in the bank, then this may lower the interest on the loan.
But the income and credit history of the guarantor almost never affect the parameters of the loan. Most often, the bank simply informs whether such a guarantor is suitable for him or not.
Does the borrower's debt affect the credit history of the co-borrower and guarantor?
The credit history of the co-borrower contains complete information on the loan of the main borrower, including the history of payments. Moreover, the outstanding part of the loan is considered the debt of the co-borrower. If he wants to take a loan for himself, financial institutions will calculate the size of the new loan taking into account this debt.
In the credit history of the guarantor someone else's loan or loan is not reflected. But only as long as the borrower regularly makes payments. If the borrower stops repaying the loan, then the obligations go to the guarantor - and the debt appears in his credit history.
Does the co-borrower and guarantor have the right to the property purchased on credit?
By default, neither the co-borrower nor the guarantor becomes the owner of the property that was purchased with credit money. They have the right to own an apartment, car or other item only if they, together with the borrower, appear as buyers in the purchase and sale agreement.
Only the spouses automatically become the owners. For example, when they take out a mortgage, the acquired housing is considered their joint property, unless a marriage contract with different conditions has been entered into.
In other cases, the co-borrower and the guarantor may conclude an agreement on mutual obligations with the main borrower. In such an agreement, it is possible to prescribe that the co-borrower (guarantor) will become the owner of the property, for the purchase of which a loan or loan was issued, if he is forced to pay the debt instead of the borrower.
In addition, if the borrower and co-borrower initially intend to pay the loan equally, they can immediately formalize equal ownership of the property.
What information on the loan is available to the co-borrower and guarantor?
The co-borrower has the right to receive a payment schedule, information on the amount of current debt, as well as data on payments already made.
The loan agreement specifies how the bank provides the co-borrower with this information. As a rule, detailed information about the loan is available in the mobile application and the personal account of the co-borrower on the bank's website.
The bank is not obliged to tell the guarantor about the amount of outstanding debt, made or forthcoming payments, while the borrower makes money on schedule. The bank begins to inform the guarantor only if the borrower stops paying and the responsibility for repaying the debt passes to the guarantor. However, some banks include the surety's right to access this information in a surety agreement, loan agreement, or banking rules.
Is the liability for late payments the same?
If the main borrower does not make payments on time, then the obligation to repay the debt in any case passes to the co-borrower or guarantor. But with different speeds and different consequences.
The co-borrower can immediately know that the payment is overdue. This information can be easily verified through the online bank or mobile application. Within 7 days, the bank will additionally send him an SMS message, push notification or e-mail about this - a specific method is prescribed in the loan agreement.
The information about the delay is reflected in the credit history of the co-borrower. Therefore, it is in his interests to immediately make the next payment on the loan, otherwise in the future it will be more difficult for him to get a loan.
The guarantor does not always find out about delays immediately. Usually, only after the bank presents him with a demand to make the next payment for the borrower and pay the penalty for delay. As a rule, the surety agreement sets the period during which the guarantor must transfer the money. The countdown starts from the moment when he receives the bank's demand.
If the guarantor fulfills this requirement within the time frame set by the bank, the borrower's delays will not affect his credit history. But if he does not deposit the money on time, it will already be considered his own delay - and spoil his credit image. In addition, fines are usually spelled out in the surety agreement - in case the surety does not pay the money on time.
If the co-borrower or guarantor does not begin to pay off the borrower's debt voluntarily, the bank may go to court.
If the loan is not returned after the court decision, the bailiffs have the right to seize the accounts and deposits of the co-borrower or guarantor. In cases where there is not enough money to pay off the debt, the bailiffs can auction off the property of the co-borrower or guarantor in order to return the debt to the bank.
Is it possible to change the terms of the contract?
The co-borrower can change the terms of the loan agreement, but only with the consent of the main borrower. For example, he can apply to the bank with a request to increase the loan term and decrease monthly payments - to restructure the loan. Or, conversely, repay it ahead of schedule.
In the case of a mortgage, the co-borrower can arrange a mortgage vacation if he finds himself in a difficult life situation. But when the bank decides whether the case is suitable for the conditions of the vacation, it will evaluate the total average monthly income of the borrower and co-borrower.
The main risk of the main borrower is that, without the consent of the co-borrower, he is not entitled to change the terms of the contract. For example, if the co-borrower does not provide data on his income or is categorically against extending the loan term, the borrower will not be able to extend payments.
The guarantor does not sign the loan agreement and cannot influence its terms. But if the borrower, for example, increases the size of the loan, this will not affect the obligations of the guarantor - unless he gives his consent to this and signs a new surety agreement.
If the guarantor takes over the payment of the debt (voluntarily or by court order), he will be able to negotiate its terms with the bank. Perhaps the bank will agree to restructure the loan.
Is it possible to split the loan and pay only part of the debt?
In theory, this is possible. In this regard, it is easier for guarantors - they can initially prescribe in the contract of surety, which secures responsibility for only part of the debt.
Co-borrowers may try to negotiate with the bank to split the loan between them. But banks are reluctant to do this. It is important for the lender that the entire loan is repaid. And he doesn't care who does it. The more defendants, the higher the chances of repaying the debt in full.
Concessional loans most often cannot be divided into several, since they are issued on special terms and individually borrowers will no longer meet them.
For example, under the family mortgage program, preferential loans can be obtained by families in which a second or subsequent child was born. The bank will not split such a loan in half between mom and dad - simply because the mortgage loan is secured by one house and it cannot be divided.
The terms of the loan can be changed by a court decision, then the consent of the bank is not required. But the court rarely makes such decisions. For example, the divorce of the co-borrower spouses will not be a sufficient reason for the court to change the terms of their loan agreement.
At the same time, both the guarantor and the co-borrower have the right to demand that the borrower reimburse them for the cost of repaying the debt in full or in part. If you cannot agree peacefully, you can go to court.
If I take out a loan, who should I attract - borrowers or guarantors?
It is more profitable for the borrower to attract a co-borrower than a guarantor. After all, if the co-borrower has a good and stable income, there is a chance to get a loan on more favorable terms.
But keep in mind: you will have to coordinate all important decisions on the loan with your co-borrower. And if he is against, for example, a mortgage vacation - most likely, you will not be able to take them. Therefore, it is better to take as co-borrowers close relatives with whom you have a common budget and financial interests, or docile friends with whom it is easy to negotiate.
If I am asked to become a co-borrower or guarantor, which status should I choose?
To begin with, you should generally understand whether you are ready to take responsibility for someone else's debt.
In the case of family members - spouses, parents, children - especially if you have a common budget, it makes sense to act as a co-borrower. Then the terms of the loan or loan may become more favorable.
When you are asked for a favor by someone who is not so close, but you are determined to help, the status of a guarantor is safer. Even if a friend occasionally is a little late with payments, it will not ruin your personal credit history and someone else's debt will not prevent you from taking your own loan.
If you do not want to refuse, but the amount of possible debt scares you, you can become a guarantor only for a part of the loan. For example, half or a third of the debt. In this case, the borrower will have to find other guarantors who will also take responsibility for the remainder of the debt. Not all banks agree to share responsibility for a loan among several guarantors, but finding a more compliant bank is already a borrower's problem.
The bank will conclude a separate agreement with each guarantor. If the borrower suddenly stops paying, you will be obliged to repay the lender only your share of the outstanding debt.
Read more about the features of guarantors and co-borrowers in the articles "I am offered to become a co-borrower. Should I agree?" And "I am being asked to become a loan guarantor. Do I have to agree?".
What is the difference between a co-borrower and a guarantor?
The co-borrower is the same borrower. He has the same rights and obligations as if he took out a loan himself. Even when you are persuaded to sign an agreement only "for show" and it is not you who will use the credit money, you bear a great responsibility. If the main borrower for some reason cannot pay the loan on time, the co-borrower will have to pay the money.
The guarantor vouches for the borrower - guarantees the bank that the loan will be repaid within the agreed period. The guarantor is not obliged to follow the borrower's payment schedule. If he is late with the payment for a couple of days, this does not threaten the guarantor. But if the delay is serious, the bank will present claims to the guarantor - and then the debt will be reflected in its credit history.
For large loans, both co-borrowers and guarantors can be attracted at the same time. If the borrower stops paying, the co-borrower will have to repay the debt. If he also does not make payments, then the guarantor will have to pay.
Let us consider in more detail how the requirements for co-borrowers and guarantors differ, their capabilities and responsibilities.
What documents do I need to provide?
Usually, the co-borrower must provide the bank with the same set of documents as the borrower: passport, SNN or TIN, marriage certificate, income statement, certified copy of the work book. Each bank may have its own set of documents.
Sometimes the list of documents for the borrower and co-borrower may differ. For example, under a family mortgage program, the main borrower must provide birth certificates for the children, and the co-borrower does not need to do so.
In most cases, the guarantor must provide only a passport, income statement and a certified copy of the work book.
The co-borrower signs the loan agreement with the borrower, but the guarantor does not. The bank concludes a separate surety agreement with him.
If the loan agreement provides for the mandatory registration of insurance, then the co-borrower will also have to sign the insurance agreement. This is usually not required from the guarantor.
Is it possible with the help of guarantors and co-borrowers to change the loan size and interest rate?
The financial position and credit history of the co-borrower directly affect the terms of the loan. The bank checks the co-borrower in the same way as the borrower: place and length of service, income, financial discipline. The amount of the loan, the percentage and the period for which it is issued may depend on the results of the check.
As a rule, the higher the income of the co-borrower, the more the bank is willing to lend. If the financial position of the co-borrower inspires confidence in the bank, then this may lower the interest on the loan.
But the income and credit history of the guarantor almost never affect the parameters of the loan. Most often, the bank simply informs whether such a guarantor is suitable for him or not.
Does the borrower's debt affect the credit history of the co-borrower and guarantor?
The credit history of the co-borrower contains complete information on the loan of the main borrower, including the history of payments. Moreover, the outstanding part of the loan is considered the debt of the co-borrower. If he wants to take a loan for himself, financial institutions will calculate the size of the new loan taking into account this debt.
In the credit history of the guarantor someone else's loan or loan is not reflected. But only as long as the borrower regularly makes payments. If the borrower stops repaying the loan, then the obligations go to the guarantor - and the debt appears in his credit history.
Does the co-borrower and guarantor have the right to the property purchased on credit?
By default, neither the co-borrower nor the guarantor becomes the owner of the property that was purchased with credit money. They have the right to own an apartment, car or other item only if they, together with the borrower, appear as buyers in the purchase and sale agreement.
Only the spouses automatically become the owners. For example, when they take out a mortgage, the acquired housing is considered their joint property, unless a marriage contract with different conditions has been entered into.
In other cases, the co-borrower and the guarantor may conclude an agreement on mutual obligations with the main borrower. In such an agreement, it is possible to prescribe that the co-borrower (guarantor) will become the owner of the property, for the purchase of which a loan or loan was issued, if he is forced to pay the debt instead of the borrower.
In addition, if the borrower and co-borrower initially intend to pay the loan equally, they can immediately formalize equal ownership of the property.
What information on the loan is available to the co-borrower and guarantor?
The co-borrower has the right to receive a payment schedule, information on the amount of current debt, as well as data on payments already made.
The loan agreement specifies how the bank provides the co-borrower with this information. As a rule, detailed information about the loan is available in the mobile application and the personal account of the co-borrower on the bank's website.
The bank is not obliged to tell the guarantor about the amount of outstanding debt, made or forthcoming payments, while the borrower makes money on schedule. The bank begins to inform the guarantor only if the borrower stops paying and the responsibility for repaying the debt passes to the guarantor. However, some banks include the surety's right to access this information in a surety agreement, loan agreement, or banking rules.
Is the liability for late payments the same?
If the main borrower does not make payments on time, then the obligation to repay the debt in any case passes to the co-borrower or guarantor. But with different speeds and different consequences.
The co-borrower can immediately know that the payment is overdue. This information can be easily verified through the online bank or mobile application. Within 7 days, the bank will additionally send him an SMS message, push notification or e-mail about this - a specific method is prescribed in the loan agreement.
The information about the delay is reflected in the credit history of the co-borrower. Therefore, it is in his interests to immediately make the next payment on the loan, otherwise in the future it will be more difficult for him to get a loan.
The guarantor does not always find out about delays immediately. Usually, only after the bank presents him with a demand to make the next payment for the borrower and pay the penalty for delay. As a rule, the surety agreement sets the period during which the guarantor must transfer the money. The countdown starts from the moment when he receives the bank's demand.
If the guarantor fulfills this requirement within the time frame set by the bank, the borrower's delays will not affect his credit history. But if he does not deposit the money on time, it will already be considered his own delay - and spoil his credit image. In addition, fines are usually spelled out in the surety agreement - in case the surety does not pay the money on time.
If the co-borrower or guarantor does not begin to pay off the borrower's debt voluntarily, the bank may go to court.
If the loan is not returned after the court decision, the bailiffs have the right to seize the accounts and deposits of the co-borrower or guarantor. In cases where there is not enough money to pay off the debt, the bailiffs can auction off the property of the co-borrower or guarantor in order to return the debt to the bank.
Is it possible to change the terms of the contract?
The co-borrower can change the terms of the loan agreement, but only with the consent of the main borrower. For example, he can apply to the bank with a request to increase the loan term and decrease monthly payments - to restructure the loan. Or, conversely, repay it ahead of schedule.
In the case of a mortgage, the co-borrower can arrange a mortgage vacation if he finds himself in a difficult life situation. But when the bank decides whether the case is suitable for the conditions of the vacation, it will evaluate the total average monthly income of the borrower and co-borrower.
The main risk of the main borrower is that, without the consent of the co-borrower, he is not entitled to change the terms of the contract. For example, if the co-borrower does not provide data on his income or is categorically against extending the loan term, the borrower will not be able to extend payments.
The guarantor does not sign the loan agreement and cannot influence its terms. But if the borrower, for example, increases the size of the loan, this will not affect the obligations of the guarantor - unless he gives his consent to this and signs a new surety agreement.
If the guarantor takes over the payment of the debt (voluntarily or by court order), he will be able to negotiate its terms with the bank. Perhaps the bank will agree to restructure the loan.
Is it possible to split the loan and pay only part of the debt?
In theory, this is possible. In this regard, it is easier for guarantors - they can initially prescribe in the contract of surety, which secures responsibility for only part of the debt.
Co-borrowers may try to negotiate with the bank to split the loan between them. But banks are reluctant to do this. It is important for the lender that the entire loan is repaid. And he doesn't care who does it. The more defendants, the higher the chances of repaying the debt in full.
Concessional loans most often cannot be divided into several, since they are issued on special terms and individually borrowers will no longer meet them.
For example, under the family mortgage program, preferential loans can be obtained by families in which a second or subsequent child was born. The bank will not split such a loan in half between mom and dad - simply because the mortgage loan is secured by one house and it cannot be divided.
The terms of the loan can be changed by a court decision, then the consent of the bank is not required. But the court rarely makes such decisions. For example, the divorce of the co-borrower spouses will not be a sufficient reason for the court to change the terms of their loan agreement.
At the same time, both the guarantor and the co-borrower have the right to demand that the borrower reimburse them for the cost of repaying the debt in full or in part. If you cannot agree peacefully, you can go to court.
If I take out a loan, who should I attract - borrowers or guarantors?
It is more profitable for the borrower to attract a co-borrower than a guarantor. After all, if the co-borrower has a good and stable income, there is a chance to get a loan on more favorable terms.
But keep in mind: you will have to coordinate all important decisions on the loan with your co-borrower. And if he is against, for example, a mortgage vacation - most likely, you will not be able to take them. Therefore, it is better to take as co-borrowers close relatives with whom you have a common budget and financial interests, or docile friends with whom it is easy to negotiate.
If I am asked to become a co-borrower or guarantor, which status should I choose?
To begin with, you should generally understand whether you are ready to take responsibility for someone else's debt.
In the case of family members - spouses, parents, children - especially if you have a common budget, it makes sense to act as a co-borrower. Then the terms of the loan or loan may become more favorable.
When you are asked for a favor by someone who is not so close, but you are determined to help, the status of a guarantor is safer. Even if a friend occasionally is a little late with payments, it will not ruin your personal credit history and someone else's debt will not prevent you from taking your own loan.
If you do not want to refuse, but the amount of possible debt scares you, you can become a guarantor only for a part of the loan. For example, half or a third of the debt. In this case, the borrower will have to find other guarantors who will also take responsibility for the remainder of the debt. Not all banks agree to share responsibility for a loan among several guarantors, but finding a more compliant bank is already a borrower's problem.
The bank will conclude a separate agreement with each guarantor. If the borrower suddenly stops paying, you will be obliged to repay the lender only your share of the outstanding debt.
Read more about the features of guarantors and co-borrowers in the articles "I am offered to become a co-borrower. Should I agree?" And "I am being asked to become a loan guarantor. Do I have to agree?".