There are thousands of reasons why we need to ask for a loan sometime. If this is your case and you are thinking of asking the bank for money to carry out any project, you should know that there are several types, including the loan with a guarantee. In this article we clarify the doubts about this type of loans, the types that exist and everything you need to know about the figure of the guarantee.
What are loans with collateral?
Loans that have a guarantee as collateral are financial products that banks put at the service of their clients. They lend them money in exchange for interest repayment.
The guarantee is a guarantee of payment. Usually, it is a person or a good that is the one who responds in the event that the holder of the loan breaches their payment obligations. These types of loans carry a risk, if the loan is not repaid, the bank can go to the guarantee to claim and make the payment effective.
Guarantees are typically goods of high value. Therefore, in exchange for a more valuable guarantee, the bank grants greater amounts of money. Loans with collateral have several characteristics:
- Banks offer more money.
- It allows people with a negative credit history to access financial products of this type.
- Interest rates are lower than those of other alternative products.
What types of loans with collateral exist?
The different types of loans with collateral are differentiated based on the collateral:
- Loans with personal guarantee : in this case, the guarantor is a person. It will be who will respond to the debt in case it is not paid. A guarantee has the same obligations as the loan holder. For a guarantor it is a great risk, as it can become seized and end up on a list of delinquents.
- Loans with collateral : in this case, who requests the loan with collateral offers as collateral an object or with a value similar or superior to that of the debt. This type of property is usually a car or home.
- Bank guarantee: this loan with guarantee is guaranteed by a bank. That is, a bank undertakes to respond in the event of default to a third party. This type of loan with collateral puts the bank at risk, so the commissions will be higher and will depend on the term, type and risk. On the other hand, banks usually only endorse their own clients.
What are the requirements to be an endorsement?
To be a guarantor of a loan with collateral, it is necessary to meet some requirements. The objective is to guarantee to the entity that lends the money that the borrower has its support to face the debt:
- Be of legal age
- Have a stable source of income (payroll or pension). This guarantees the bank a monthly payment from which to obtain monthly debt payments.
- The guarantor must also own a set of assets paid in full.
- Not having another outstanding debt.
Who pays the loan in case of default?
One of the main questions asked of people who want to obtain a loan with collateral is what would happen if the debt was not paid.
If the borrower does not meet the loan payment, the bank first analyzes the situation of the loan applicant to find out why he does not continue paying the agreed terms. If it is understood that it cannot effectively cope with the debt, the bank will analyze the guarantee situation.
In the event that the guarantor disposes of sufficient income to take charge of the installments, he will pay them as before the borrower did.
What are the obligations of the guarantor?
If someone has asked you to be the guarantee to apply for a loan, you should consider what your responsibilities would be and if they affect your creditworthiness :
- If the person you endorse does not pay, you do it.
- You will have the same payment obligations as the person who has requested the loan.
- You will be in the CIRBE, the database that records the credit operations. This can reduce your ability to get credit.
- If you cannot pay, you could be seized and will become part of the delinquent listings such as credit institutions.
- If you pay part of the debt, you can claim the loan holder later.
- The guarantee is inherited, your heirs will have to take charge in case you die. This is an important fact when making the decision to become a guarantee.
Now that you know the characteristics of secured loans and the consequences of being a guarantor, you can make a better decision when applying for a loan. Anyway, our recommendation is that you go to an expert to advise you and help you to project a financial plan adapted to your economic situation.