Banks have clear rules according to which they can grant a loan. First of all, they need the certainty that the borrower can repay the borrowed money with interest. A fixed, sufficiently high income of the borrower can serve as security and / or valuables, real estate and also life insurance, which the bank can access if the borrower is unable to pay.
If there is no collateral, the customer’s credit rating is considered weak and he will not get a loan. If a loan application is rejected by the bank, the bank sees a too high credit risk after thorough examination, which means that the customer is unlikely to be able to afford the loan installments.
What to do if the bank rejects a loan application because of poor creditworthiness?
Now the chances of getting a loan are very limited. Either there is a private lender or you can try to take out an expensive foreign loan, which you get without any security, but with extremely high interest processing fees.
The best solution to the problem can be a loan with a guarantee from the bank. A relative, acquaintance or friend with a good credit rating can be considered as a guarantor. The guarantor is liable to the bank for the full payment of the loan if the borrower defaults. If two people are responsible for the loan repayment, the bank has enough security to get their money back and may grant the loan.
A loan with a guarantee should be carefully considered
With a loan with a surety, the advantages are clearly with the borrower, but the risks with the guarantor. The guarantor has no benefit from his guarantee, but in the worst case it has to bear very negative financial consequences. He should check to what extent his financial means are still sufficient for himself if he has to step in to pay. A guarantee is often presented as a mere formality. It is also when the borrower actually pays off the loan entirely himself.
However, as soon as the borrower can no longer or does not want to pay off, the guarantor must step in immediately, without the bank taking any measures, such as a garnishment, to persuade the borrower to pay. The guarantor should also clarify in advance with the borrower how he can get his money back if the bank asks him to check it out. The guarantor cannot reclaim anything from the borrower without a written agreement. Anyone involved in a loan with a guarantee should only get involved after a sufficient period of time and careful consideration.
Can a loan with a guarantee be avoided?
A loan guarantee is usually required by the loan provider if the applicant’s creditworthiness is insufficient. This requirement for credit security is usually justified, but not always. However, some credit providers always require a guarantor to double-secure the loan. For example, there are credit providers who generally request a spouse’s guarantee if the loan amount exceeds 10,000 USD.
However, if the borrowing spouse has a good credit rating, they should be able to do without the spouse’s guarantee. One could check the conditions of different loan providers – in some cases a guarantor can be waived.