What is the difference between a guarantor and a co-borrower: detailed description, features, difference

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Those who have not applied for a bank loan, the concepts of "guarantor" and "co-borrower" can be perceived in the same way. However, these terms have significant differences. Even if you do not plan to personally take out a loan, this information will not be superfluous. It is possible that one of your relatives or acquaintances will ask you to act as a guarantor or co-borrower. Having understood these concepts, you will know what responsibility each of the participants in the transaction bears to the bank.

Detailed description

In short, both the guarantor and the co-borrower are guarantors to the bank. They bear varying degrees of responsibility for the repayment of the loan granted to the borrower. The bank needs third parties to get confidence in the return of the issued debt, and the recipient of the loan - to increase the chances of receiving the required amount.

By assuming the obligations of a co-borrower or guarantor, a person expresses his readiness to bearfinancial liability for a loan issued to the principal debtor. If he turns out to be insolvent, the obligation to repay the loan will pass to third parties. The bank will be able to legally require them to repay a previously issued loan, which they may not even have used.

If the guarantor is a legal entity, for example, the firm in which the borrower works, there is a high probability that he will receive the desired loan. Since his company acts as a guarantor of serviceable and timely payments. Not only a legal entity, but also an individual can act as a guarantor.

Risks for guarantors

There are such types of liability:

• Solidarity (full). In this case, the borrower and his guarantor are equally liable to the bank. If the main borrower does not make payments or does not do it on time, the lender, after the first violation, can turn to a third party. The only case where joint and several liability cannot be waived is if the loan is issued by your spouse. In other cases, there is a choice whether to take on such obligations or not.
• Subsidiary (partial). In this case, it is much more difficult to shift the obligations of the main borrower to the guarantor. The bank must go to court to prove the insolvency of the principal debtor. Only in this case can a third party be required to pay debts.

Of course, banks prefer the first type of liability, as this makes it much faster and easier to collect a debt from a guarantor, without the cost of legal costs.

Who is a co-borrower

These persons are jointly and severally liable to the bank. As you understand, this allows the creditor to demand from each of them the full payment of the debt. One loan can attract up to 3-4 co-borrowers. When determining the amount of the loan to be issued, their total income will be taken into account. That is why the involvement of co-borrowers is most relevant for mortgage lending. Each of them will be fully responsible until the final payment of the debt taken from the bank.

Anyone can act as a co-borrower: a spouse or other relative, a business partner, etc. If a married couple applies for a loan, then it is not even necessary to have an officially registered marriage to apply for a loan. However, in this case, there may be some difficulties in obtaining a tax deduction.

Co-borrower when buying property

The lending market, especially mortgage, is quite developed. After all, almost everyone wants to buy a home, and the probability of saving up for the desired purchase among the population remains low.

With today's real estate prices, buying a home alone is not easy. That is why you have to enlist the support of a guarantor or co-borrower. However, before applying for a loan, you need to figure out how the guarantor differs from the co-borrower in a mortgage?

If one co-borrower completely closes the loan, then he has every right to demand a partial return of the funds spent from the other. A mortgage guarantor does not have this right.

When buying an apartment on a mortgage, a co-borrower has the right to become one of the owners of the purchased housing, despite the fact that it will be pledged. The guarantor cannot claim a share in the apartment.

To obtain a mortgage, the bank usually allows you to attract up to 5 co-borrowers, the income of each of which allows you to increase the amount of the loan. Thus, the chances of getting a loan increase.

Guarantor and co-borrower: what is the difference

It can be said that the guarantor is a reserve borrower who is liable to repay the loan only if the principal debtor does not repay the loan. The presence of such a guarantor may be a prerequisite for a bank with insufficient income or a short experience of a person taking a loan.

If we return to the question of how the guarantor differs from the co-borrower, then it must be said that the latter is responsible on an equal basis with the one who takes the loan. Therefore, the bank can apply to him with a demand to pay the debt, without waiting until the main debtor is unable to repay the debt. A co-borrower is usually attracted when there is not enough income to receive the required amount. The income of a third party will also be taken into account by the bank when considering a loan application.

One more point, supplementing the answer to the question, what is the difference between a guarantor and a co-borrower. It consists in the fact that the first of them is obliged to compensate the bank for the costs of debt collection. However, this does not give the guarantor the right to have a share in the acquired property. The only opportunity he gets is a legal basis to demand the return of damages from the main debtor.

If you remember who the co-borrowers are, it will immediately become clear how a guarantee differs from a solidary obligation. Knowledge of these concepts will allow you to correctly draw up credit documents. Solidary obligations imply equal responsibility for repayment of the loan and the same rights to the acquired property. The guarantee does not give such rights, but obliges to repay the loan only if the main borrower cannot cope with this. Knowing such nuances, you will not get confused in the terms when processing documents at the bank.

What is the difference between a guarantee and an order

To answer the question, you need to understand the concepts. A surety presupposes an obligation. It has to do with loan repayment. The word "assignment" sounds similar, but in fact has nothing to do with the previous concept. This is just a kind of contract, according to which one party performs the task assigned to it. In other words, a request.

What is the difference between a surety and a power of attorney

Now it will be easy to answer this question. What is a guarantee, we discussed above. To say how a guarantee differs from a power of attorney, you need to consider the second term. A power of attorney is one of the types of guarantee in which the second party to the contract receives the right to act on behalf of the first. By issuing such a document, the participant in the transaction receives legal grounds to act on behalf of another person, it does not matter: an individual or a legal entity.

Tax deductions

If we return to the question of how a guarantee differs from a co-borrower, it will become clear that the tax deduction is not available to everyone. The guarantor will not be able to receive a tax deduction when buying an apartment on a mortgage, but the co-borrower has this right.

For example, a son arranges a mortgage, and his parents act as co-borrowers. At the same time, they do not receive money from the bank and do not become owners of real estate. If the son is unable to make payments, the bank will legally send a request for repayment of the loan to his parents. A similar situation may apply to spouses who are in a registered relationship. Even in the event of a divorce, people who were once spouses continue to be co-borrowers, retaining all the rights and obligations assigned to them when concluding an agreement with a credit institution. This is a very important nuance when considering the topic, what is the difference between a guarantor and a co-borrower.

Deduction amount

When applying for a deduction, you can claim up to 2 million rubles for real estate and 3 million for interest. If the co-borrowers are unmarried, the property right may be issued to one or both of them. However, everyone will claim the tax deduction separately.

To do this, you need to fulfill simple conditions:

• Be the owner of the purchased housing, and not just a co-borrower.
• Pay outpart of the mortgage and interest. It is important that the payment for the issued loan comes from different accounts. The tax office will have to prove that each co-borrower participates in the payment of the mortgage.

Having figured out the difference between a guarantor and a co-borrower on a loan, and evaluating all the nuances, you can decide which option suits you best.