A surety is liable for the loan repayment if the actual borrower is unable to pay. The Civil Code provides for the default guarantee, in which the guarantor’s obligation to pay only arises after an unsuccessful execution.
However, financial institutions usually require a joint and several guarantor and can fall back on the guarantor as soon as they are aware of the borrower’s insolvency without having to initiate any coercive measures against the borrower. If the guarantor is used to repay the loan on a loan with guarantors from the bank, he is entitled to the repayment of the corresponding amount by the borrower, which is often not enforceable due to lack of assets.
Requirements for the economic performance of the guarantor
In the case of unusually high loan amounts as well as bad creditworthiness of the loan applicant, financial institutions suggest taking out the loan together with a guarantor. However, you have to place higher demands on its economic performance than on the actual borrower, so that the guarantee received is also valid in the event of a possible legal challenge. Courts are particularly skeptical when it comes to surety commitments made by relatives, so that many banks prefer to pay out a loan with a co-applicant rather than a loan with a guarantor.
If the relative has a high income or wealth and is not unduly burdened by the use of the surety, case law accepts the loan with guarantor. In the case of a legally permissible loan with a guarantor, the applicant’s poor creditworthiness does not constitute an obstacle to credit, since the bank can register the money with the guarantor in the event of default. This means that both low-income workers and the unemployed receive the desired loan, which is secured by a guarantee.
Possible special features of a guarantee for older loan applicants
A special variant of a loan with a guarantor is mainly used for older borrowers. The guarantee agreement provides that the guarantor can only be called in the event of the borrower’s death. In this case, the guarantor is not economically overburdened if the expected inheritance exceeds the amount of the guarantee provided. The guarantee, which is limited to the death, enables senior citizens to borrow in many cases, especially since it is expensive to take out old age protection insurance that also covers the risk of death.