Many banks, considering applications for a loan, require the involvement of guarantors as a source of additional financial guarantees for the return of funds. Especially important is the presence of persons willing to vouch for the successful return of large amounts of loans. Having signed the obligations, sometimes it is doubtful whether the guarantor can take the loan himself if the need arises.
Difficulties in obtaining a loan by the guarantor
As a rule, the closest people and relatives who are ready to help in finding a source of funding and are confident in the responsibility of the borrower become the guarantors. However, even in this case, when the client’s solvency deteriorates, payment interruptions often occur, delays are formed, and fines are charged. If the borrower cannot find a compromise solution with the bank, the latter will necessarily turn to the guarantor with the requirement to pay the loan debt with all interest and penalties accrued.
A citizen who has become a guarantee for the lender of successful repayment of a loan is not insured against the occurrence of financial obligations to make payments for the borrower. As a result, it is very difficult to predict the level of income and monthly expenses of a person. Therefore, turning to the bank for lending, the guarantor may face a refusal, even if the level of income confirmed by the certificate is sufficient to repay its own loan.
According to paragraph 1 of Art. 363 of the Civil Code of the Russian Federation, when appealing to a court for the repayment of the debt, the bank makes claims:
- on the main debt;
- accrued interest;
- judicial penalties.
In the future, to “whitewash” the reputation, the guarantor will have to spend a lot of time and effort to update the records with personal information in the credit bureaus (BKI) in the following ways:
- Making high-interest loans at banks that are loyal to the payer’s reputation, compensating for possible losses by high overpayment of interest. We will have to arrange and successfully repay several loans, the total amount of which will depend on the size of the debts of the first borrower.
- Contacting a microfinance organization collaborating with a credit bureau. Within a short period, you can get small loans and quickly repay them by paying interest for each day of using borrowed funds. In microfinance structures, it is easiest to lend money, requiring one passport for registration. Of course, the overpayment price will be significant, but in the future the guarantor will be able to expect to receive a conventional loan in a normal bank on favorable terms and a large amount.
Reasons for refusal
The law does not limit the rights of guarantors to apply to the bank for their own credit. However, in practice, when there is a need for a loan, a person with a guarantee faces the difficulty of a limited choice of banks and loan offers. The reason lies in the financial issue – the bank has doubts whether the prospective client will be able to successfully cover the debt for another person and make his own monthly payments.
Some banks refuse to issue a loan to the guarantors, however, most often the financial institution will consider the application and issue a positive decision by adjusting the loan amount to a lower rate or by requesting additional guarantees. Making a decision, representatives of the bank will consider:
- Credit history of a person.
- His solvency and level of income.
- Available loan commitments and guarantees.
- The willingness of the applicant to provide additional security.
As follows from this list, the outstanding loan, in which a citizen is listed as a guarantor, can significantly reduce the chances of successfully lending the required amount in the bank:
- If the main borrower stops paying the loan or makes payments out of time, not in full, chaotically, the credit history and reputation deteriorate not only with the main payer, but also with his guarantor.
- With the deterioration of the financial position of the borrower, the bank may shift the financial burden on payments to the guarantor, which negatively affects its solvency.
These situations are quite common, so the bank will be wary of the guarantor’s request and, most likely, will reduce the amount of the credit line given the high risk that a citizen has to pay other people’s debts. If the payer of the first loan made large and long delays, the credit history of the person who vouched for the other one would be irrevocably damaged, which would lead to the refusal of banks to issue a loan. As a result, a person becomes a hostage of how the first borrower will behave in relation to the bank.
In any case, if the principal payer for the loan failed the guarantor, the latter will face a lot of trouble associated with correcting their own reputation and regulating the financial issue with the debtor’s bank.
Vouching for someone on the loan, you need to be prepared for difficulties in negotiating your own loan. However, with careful preparation, taking into account the following recommendations, the chances for a loan are increased:
- Success in issuing a loan depends on the integrity of the client and the accuracy of the information provided to the bank. Do not hide from the bank the fact of execution of the guarantee. Filling out the questionnaire, you must make full information about yourself and your financial situation. Attempting to hide information can lead to a categorical refusal of the bank without the possibility of rectifying the situation. Being a commercial structure, the bank aims to obtain a guaranteed profit, which is questioned in view of the revealed fraud by a citizen.
- When preparing for a branch visit, you should carefully evaluate your payment ability in advance, taking into account the risk of default on the first loan and the need to repay other people’s obligations in the future. If you reduce the amount requested in the questionnaire, the chances of getting a loan increase.
- If the first loan, in which the citizen acted as a guarantor, was recently repaid, the information on closing the loan might not have time to be added to the CII. It is possible to avoid refusal due to a guarantee if you take a certificate from a bank stating that recent credit obligations have been fully repaid and the creditor bank has no financial claims to the guarantor.
- When the income level does not allow you to take a personal loan, there is an opportunity to relinquish the guarantee by re-issuing obligations to another person who meets the requirements of the bank. After the approval of a new candidate for the role of a guarantor, a citizen will be able to calmly apply to the bank and expect to receive the necessary loan.
Having signed the guarantee for the loan of another person, there is no doubt that it is possible to get a loan for yourself. If there is a need for borrowed funds, the guarantor has many options for processing the contract as a borrower. Having been refused in one bank, they seek approval of a loan from another credit institution. There are a lot of banks interested in attracting as many customers as possible and willing to take certain risks.