Like any other borrowing, rescheduling with a guarantor is possible. It is also easy to see that surety bonds are less frequently used to repay existing loans than for new consumer loans. Most applicants are not necessarily reliant on a bank loan to reschedule, as in the case of a refusal they can simply keep the old loans running, even if they are linked to higher interest rates than a new favorable rescheduling loan.
When does the guarantor make sense when restructuring debt?
Rescheduling with a guarantor is required in most cases when a bank customer wants to repay old loans because of the high interest rates and at the same time the credit rating has deteriorated. Most of the existing loans could be taken out without a loan guarantee. Lenders may only terminate consumer credit if the bank customer actually repays the accrued installments irregularly.
The deterioration of the economic situation of a borrower is not sufficient for the recovery of correctly requested installment loans. There is no comparable security with regard to the disposition credit and the credit limit on the credit card account. These can be reduced or terminated completely if the financial situation of the customer deteriorates. Disposing already means a reduction in monthly payments for the reduction, even if it has been shown to reduce costs. If the financial institution does not agree to a gradual reduction in the regulatory framework, it is often necessary to reschedule with a guarantor simply because of the negative balance.
What does the guarantee mean and who can vouch for it?
When it comes to a loan with a guarantor, financial institutions almost always use the self-evident message. In this case, the payment obligation of the credit guarantor already occurs if the lender knows with sufficient certainty that the actual customer can not fulfill his obligations. Although the legislature basically provides for the direct liability as a normal case, it allows the contracting parties to deviate from the agreement. Since credit institutions already want to seize the guarantor before they have arranged for a futile attachment attempt to the actual credit customer, they almost always make use of this option with guarantee loans.
In principle, every adult person can act as guarantor. However, the bank has to check for apparently inexperienced contractors that they understand the importance of the loan guarantee and that they do not financially assume it. The tighter the bondsman’s emotional attachment to the borrower, the stricter the requirements of the courts to the appropriate exams. Guarantees from spouses and partners as well as from children and parents are therefore subject to a high risk of being later classified as immoral and thus ineffective by a court. For this reason, banks often suggest that they take the new loan together instead of rescheduling it with a guarantor.
Alternatively, rescheduling may find a guarantor with little emotional attachment. In the case of a guarantee, there is an additional contract between the borrower and the loan guarantor. This means that the actual loan customer must repay the guarantor the money, if this first made payments to the bank. However, it is rare for a guarantor who has entered the credit obligation to actually recover the amount from the actual borrower. The guarantor does not necessarily have to be a natural person, so guaranty insurance is also an option. However, the latter calculates interest on the guarantee commitment, which renders debt restructuring more expensive.
How does the rescheduling with a loan guarantee?
Rescheduling with a guarantor differs only in a few points from a loan repayment without a loan guarantee. Since not all banks grant loans in connection with guarantees, the interest rate comparison shows a reduced number of offers to choose from. In many cases, the newly elected bank dictates that the debt rescheduling covers all existing loans. Exceptions to this are often loans granted on preferential terms, such as promotional loans from Intrasavings Bank, vehicle financing or zero-percentage financing via a retailer. In some cases, credit banks also release the balance of the current account or the credit card accounts as part of a rescheduling.
However, these should always include borrowers, as the loans are linked to exceptionally high borrowing rates. In the case of rescheduling with guarantors, payments are not made on the current account of the borrower, but directly on the credit accounts to be cleared. This ensures that the new loan is actually used for rescheduling rather than new debt. On the customer’s bank account, the new credit partner transfers only the portion determined to offset the disposition credit and a possible credit increase.
Since not all credit card issuers allow payments from third parties to the card account, the sums needed to clear the card accounts are partly reflected in the current account of the borrower. The interest rate comparison before applying for a rescheduling with guarantor is used to find a cheap loan. The actual savings are experienced by borrowers when, in addition to the lower interest on the new loan, they also consider the prepayment penalties that may be payable. In the case of debt rescheduling, flexible repayment modalities are a selection criterion in addition to low APR. Especially in the case of rescheduling with a guarantor, the right to a later extension of the repayment term or an occasional installment suspension is indispensable so that the loan does not become distressed.