What is a surety?
Surety is a term for the person or persons with surety responsibility. Therefore someone who provides a guarantee that the loan will be paid if the borrower does not pay.
What is the difference between guarantor and co-borrower?
A guarantor provides a guarantee for parts of the loan. A co-borrower is responsible for the entire loan in the same way as the main borrower.
How much can I borrow with a guarantor?
When applying for a loan, there are several factors that the bank will consider for how much you can borrow. One of the most important factors is the borrower’s finances, and in particular income and debt.
A common rule is that you cannot have a total debt that is more than five times your own annual income. This means that you must subtract all existing debt when calculating how much you can borrow. Then including consumer loans , student loans, car loans and credit card debt , when calculating how much you can borrow.
In addition, the borrower’s finances must be able to withstand an interest rate increase of at least three percent and/or an interest rate of at least 7 percent. This is to ensure that you will still be able to service the loan, even if the interest rate increases.
When it comes to mortgages , there is usually a requirement of at least 15 percent equity of the home’s value.
If there is an apartment with joint debt, this must also be taken into account in the calculation of the equity.
If you do not have sufficient equity, a guarantor can be an alternative. A guarantor is a person who provides security for the loan by guaranteeing repayment. The guarantor becomes personally responsible for repaying the loan if the borrower is unable to do so.
The banks have a certain flexibility when it comes to the requirements for loans. It may be possible to be approved for a loan even if you do not meet all the requirements. But the bank will always assess whether it is prudent to lend money to the borrower before making a decision.
How much can I borrow with a guarantor?
Who can be a guarantor?
Basically, there are no formal guarantor rules that limit who can be a guarantor. However, it is common for close family members, especially parents, to be guarantors for the children’s loans and debts as guarantors.
The guarantor must not have more debt himself than around 5 times gross annual income including the debt for which he is to be guaranteed.
One must be aware that vouching for someone is a legally binding agreement. The guarantor becomes personally responsible for repaying the loan if the borrower fails to do so.
It is therefore important that the guarantor is aware of what they are committing to.
That they/they have the financial ability to repay the loan if necessary. The guarantor must also have confidence that the borrower will be able to repay the loan.
A suretyship agreement is a major commitment and can be a source of potential conflicts and disagreements between the surety and the borrower. Carefully consider whether you wish to enter into a suretyship agreement. Also make sure you have a clear and unambiguous agreement in place before you sign anything.
Forms of bail
Real surety means that the bank gets extra security in the guarantor’s home. Many older generations have paid off a significant part of their home and can thus put the security as collateral. A mortgage is a form of security that gives the bank a guarantee that the loan will be repaid.
As a real estate surety, you are thus responsible for part of the loan for which you have given a guarantee. If the main borrower does not pay back the loan, the bank can demand that the mortgage guarantor repays the part of the loan for which he or she has guaranteed.
If the borrower is unable to pay back the loan, it can lead to serious consequences for the surety. This can lose his home if the bank chooses to sell it to cover the part of the loan for which he has guaranteed. Therefore, you should always be careful and thorough when you consider applying as a surety.
Usually, the surety guarantees the part of the loan that exceeds 85% of the purchase price.
Even if you stand as a guarantor, it is the borrower who has the main responsibility for repaying the loan. It is important to be sure that those who take out the loan have good enough finances to be able to pay for the loan, even if the interest rate increases.
In the case of a simple guarantee, the guarantor is only responsible for the borrower’s inability to pay. The bank cannot demand money from the guarantor until legal action has been taken against the borrower to establish this.
Simple surety is a form of surety that is not widely used by the banks today. It is because the banks want to have sufficient security for the repayment of their loans. Simple bail does not provide sufficient security. If the borrower is unable to repay the loan, the bank must first take legal action, before the guarantor can be required for money. This can be a long and expensive process for the bank.
Simple suretyship may still be applicable in certain cases, for example when a private person lends money to another private person. In such cases, simple suretyship can be a way of providing extra security for the lender.
A type of surety where the surety gives up a right to oppose claims from the creditor on behalf of the principal debtor. This means that the guarantor gives the creditor authority to demand repayment from the guarantor, without having to go through legal procedures or ask permission from the guarantor.
Self-debtor sureties are often used in business agreements and loan agreements where the creditor wants greater security for the repayment of the loan. This is a risky deal for the guarantor. It gives the creditor the opportunity to demand repayment from the guarantor without having to prove that the principal debtor cannot repay the loan. Carefully consider the risks and consequences before signing such an agreement. Most often used in a business context where, for example, owners or shareholders are guarantors.
Guarantor for loans with payment notes:
If you have debts with payment notices, you can apply for a restructuring loan . This is a special loan that can give you a fresh start by collecting all your debts in one loan. You can get this loan even if you have payment notices or debt collection, but you must be able to provide security in property. It can be your own property + the surety’s property or only the surety’s property.
As a real surety, the guarantor pledges his own property as main security or additional security for the loan. This can be a good way to get the loan you need, but remember that the guarantor responsibility is a big commitment. The guarantor can be made liable for large sums if the borrower does not repay the loan.
Read about the guarantor’s rights and obligations at Finansportalen