An obligatory requirement, when any loan for a large sum is issued, is to provide guarantees that the money will be repaid, because no credit institution (including the bank) will not risk its own capital until it is certain that the borrowed funds will be returned, even if the borrower is unable to comply with the terms of the loan agreement. There are 2 possible variants of credit security – surety and collateral. Each of them has its own advantages, disadvantages and peculiarities.
Important: It is necessary to choose what is better – a pledge or a guarantee, in each case, taking into account all the circumstances.
Many people now prefer to go to banks and financial institutions to take out a loan to buy a house or a car. It is also possible to take out consumer loans that can be spent at your own discretion. For example, it can be paying for the organization of a wedding, going to school, buying a tourist trip, repairing the house, medical treatment, purchasing furniture or household appliances. When giving out large sums of money, financial and banking companies run the risk that the funds may not be repaid. That is why they require collateral in the form of a pledge or a surety.
Peculiarities of the guarantee: the rules and nuances
A guarantor is a person who undertakes that the borrower will comply with the terms of the loan agreement. He undertakes to repay the debt if the borrower for any reason does not make payments on his own every month. The guarantor must have a good credit history, be officially employed. It is necessary to have a high salary, so he can repay the debt if necessary, if the debtor doesn’t do so. Also it is necessary to have a propiska or registration in the area, where the bank organization is located.
Usually, the guarantee as a form of credit security is used in cases where a mortgage or a consumer loan, and the borrower requests a large sum. This form of collateral is considered more favorable to the lender. The guarantor practically acts as a co-borrower (but there are still some differences between them). He will be liable to the financial company to the same extent as the loan recipient himself. This also applies to the principal (the body of the loan), interest accrual, payment of penalties, reimbursement of the costs of legal proceedings.
oth a natural person and a legal entity can act as a guarantor. A surety agreement by type of loan can be signed along with the loan contract itself or before it is signed. The second option is usually used when taking out a mortgage. After that, the home itself will be mortgaged, and the surety is terminated. If the guarantor has forcibly repaid the loan himself (full amount), he can demand that the borrower reimburse him for these payments.
Peculiarities of collateral loans
It is necessary to understand that the collateral for a secured loan is through the movable or immovable property of the borrower. The object will go to the bank if the debt is not repaid. Repayment guarantees can be such items:
- any type of real estate;
- motor vehicles;
- securities, stocks, etc;
- Large household appliances;
- Deposits (only those where there is no possibility of early withdrawal).
There are the following features of secured lending:
- until the debt is repaid, all property under the contract is encumbered, that is, the client of the bank or financial company can use it, but without the consent of the lender, he can not give it, sell, exchange or perform any other actions;
- the bank only accepts liquid objects as collateral and they should be insured;
- when a loan agreement is executed, an independent expert appraisal is necessarily required to determine the value of the property used as collateral;
- When any property is pledged, the borrower, if married, must provide consent from his or her spouse.
For the pledger, the advantage of this type of loan is that the loan amount will be large enough – it will be about 80% of the appraised market value of the property that is used as collateral. Moreover, the interest rate will be reduced and the loan period will be extended.
A pledge allows you to ensure the availability and safety of the property while the debtor is paying off the loan. It also allows the lender to meet his needs with the collateral. The fact that there is a real danger of losing the property is a great incentive for the debtor to pay the loan as quickly as possible and to meet all obligations to the bank or financial institution in full. By the way, the same property can be pledged several times.
What are the similarities and differences between pledge and surety as monetary obligations
Both versions of credit security must be drawn up in writing. This document is a supplement to the main loan agreement. If such a rule prescribed in the legislation is not respected, the surety or pledge may be invalidated.
When applying for a loan with a guarantee or a pledge, it is necessary to collect a rather large package of documents. In both cases the passport data of a citizen of the country, identification code, filling in applications and questionnaires, as well as providing documents on the pledged property or the contract of guarantee and the documents of that person are obligatory.
There are several differences. Firstly, the pledge must be necessarily registered, but the contract of guarantee has no such requirement. Secondly, the pledge can be both real estate and movable property (i.e. apartments or houses, cars, etc.). As for the suretyship contract, the subject is the guarantor’s obligation to fulfill his financial obligations.
So, most often, when choosing between a collateral or a guarantor, the borrower does not rely on the proposed credit conditions (which are almost the same), but on his personal abilities. For example, not everyone has property that can serve as collateral (or there are situations where the value of the object is less than necessary to pledge). But, on the other hand, not everyone can attract a person who is willing to become a guarantor for them and share such obligations.