Similarities and differences between a co-signer and a guarantor

Similarities and differences between a co-signer and a guarantor

Posted by on Oct 22, 2016 in Payday Loans

When you want to apply for a loan, a large choice of loans will be ahead of you. Depending on the amount of money you wish to borrow, your credit rating and the purpose of borrowing money, you may or may not be granted a certain kind of loan. When your credit rating is not ideal, being granted a loan may pose a problem. This is when people decide to have a guarantor or a co-signer for their loan agreement. Because such agreements allow even individuals with low credit rating to obtain a loan from a bank or other financial institution. Both a co-signer and a guarantor are there to strengthen the loan application of the borrower. There are certain differences between the two when it comes to their liability and responsibility for the repayment of debt.

Co-signer and a Guarantor

A co-signer is equally liable for the repayment as the borrower, which means that he is obliged to help repaying the debt when the primary borrower is not financially strong enough to do so. The lender takes into consideration both the borrower’s and the co-signer’s credit rating when the borrower applies for a loan, and they both need to submit their assets and liability statement. When the lender calculates the debt-to-income ratio, he takes into consideration both the borrower’s and the co-signer’s financial liability.

what-is-loan-insuranceWith a guarantor, the situation is different. Guarantor to a loan agreement is a secondary form of repaying the borrower’s debt. The guarantor is not equally responsible for repayment of the debt. He becomes responsible only when the primary borrower has absolutely no other ways of repaying it. This type of loan is very common in business world. Where the borrower is a legal entity (a business) and a guarantor is a private entity (an individual). Only after the business has no other ways of repaying the debt, the guarantor becomes responsible to repay the remainder of the sum.shutterstock_96276791(1)

Guarantor and a Co-signer Advantages

Having either a guarantor or a co-signer to your loan agreement has its advantages. They both help you get a loan by raising the debt-to-income ratio calculated by the lender. Which makes you liable for getting a loan eve if your credit rating is bad. This makes it easier to get a loan, and if you repay the debt in time, it can even raise your credit rating. That will make you liable for being granted other loans in future.

prestamos-a-extranjeros-300x194On the other hand, there are risks of being both a co-signer and a guarantor. These risks represent the major difference between the two entities. If a loan agreement with a co-signer is not fulfilled, both the primary borrower and the co-signer are responsible. The lender has the right to pursue both of them immediately, and the assets of both are at equal risk. For the guarantor, as he is a secondary signer of the loan agreement, the risk is lower. The guarantor becomes liable for repaying the borrower’s debt only after the borrower has absolutely no more means of repaying it himself. Therefore, the risk for the guarantor is much lower in a loan agreement than it is for a co-signer.

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