Those who did not apply for a bank loan, the concepts of “guarantor” and “co-borrower” can be understood 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 redundant. 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 before the bank.
Detailed description
In short, both the guarantor and the co-borrower are guarantors to the bank. They have varying degrees of responsibility for repaying the loan provided to the borrower. The bank needs third parties to gain confidence in the repayment of the issued debt, and to the loan recipient to increase the chances of receiving the necessary amount.
Accepting the obligations of the co-borrower or guarantor, the person expresses readiness to bear financial responsibility for the loan issued to the main debtor. If it turns out to be insolvent, loan repayment obligations will be transferred to third parties. The Bank will be able to legally demand from them the payment of a previously issued loan, which they might not even use.
If the guarantor is a legal entity, for example, the company 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. The guarantor can be not only a legal entity, but also an individual.
Risks to Guarantors
There are such types of liability:
- Joint (full). In this case, the borrower and its guarantor bear equal responsibility to the bank. If the main borrower does not make payments or does not do it in a timely manner, the lender, after the first violation, can turn to a third party. The only case when it is impossible to refuse joint liability is if the loan is drawn up by your spouse. In other cases, there is a choice whether to undertake such obligations or not.
- Subsidiary (partial). In this case, shifting to the guarantor the obligations of the main borrower is much more difficult. The bank must go to court to prove the insolvency of the main debtor. Only in this case it is possible to demand that a third party pay debts.
Of course, banks prefer the first type of liability, as this allows you to recover debt from the guarantor much faster and easier, without the cost of legal expenses.
Who is the co-borrower
These persons are jointly and severally liable to the bank. As you understand, this allows the lender to demand that each of them pay the full debt. One loan can attract up to 3-4 co-borrowers. In determining the amount of the loan issued will be taken into account their total income. That is why attracting 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: spouse or other relative, business partner, etc. If a couple applies for a loan, then it is not even necessary to have an officially registered marriage to get a loan. However, in this case, some difficulties may arise in obtaining a tax deduction.
Co-borrower when buying a property
The lending market, especially mortgage, is quite developed. Indeed, almost everyone wants to buy a home, and the probability of saving up for the desired purchase from the population remains low.
With current real estate prices, buying a home alone is not easy. That is why you have to secure the support of a surety 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 closes the loan completely, then he has every right to demand a partial refund from the other. The mortgage guarantor does not have this right.
When buying an apartment on a mortgage, the co-borrower has the right to become one of the owners of the acquired housing, despite the fact that it will be in a pledge. 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.
Surety and co-borrower: what is the difference
We can say that the guarantor is a reserve borrower who is only responsible for paying the loan if the principal debtor does not pay 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, it must be said that the latter is responsible on an equal basis with who takes the loan. Therefore, the bank may apply to him with a request for payment of the debt, without waiting until the main debtor is able to repay the debt. The co-borrower is usually attracted when there is not enough income to get the right amount. Third party income will also be taken into account by the bank when considering a loan application.
Another item that complements the answer to the question of how the guarantor differs from the 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 that he gains is the legal basis to demand damages from the main debtor.
If you recall who these co-borrowers are, it will immediately become clear how the guarantee differs from a joint obligation. Knowledge of these concepts will allow you to properly issue credit documents. Joint obligations assume equal liability for the 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 fails to do so. Knowing such nuances, you will not get confused in terms when processing documents at the bank.
What is the difference between a guarantee and an order
To answer this question, you need to understand the concepts. A surety assumes a liability. It is connected with the repayment of a loan. The word “commission” sounds similar, but in reality has nothing to do with the previous concept. This is just a kind of contract, according to which one party fulfills the assignment assigned to it. In other words, a request.
What is the difference between a guarantee and a power of attorney
Now it will be easy to answer this question. What is a guarantee, we reviewed above. To say how the guarantee differs from the power of attorney, you need to consider the second term. The 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. Having drawn up such a document, the transaction participant receives legal grounds to act on behalf of another person, it does not matter: physical or legal.
Tax deductions
If we return to the question of how the guarantee differs from the co-borrower, it becomes 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 in a mortgage, but the co-borrower has this right.
For example, a son draws up a mortgage, and his parents act as co-borrowers. However, they do not receive money from the bank and do not become property owners. If the son is unable to make payments, the bank will legally forward a loan repayment request to his parents. A similar situation may affect spouses in a registered relationship. Even in the event of a divorce, people who were formerly 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 surety and a co-borrower.
The amount of the deduction
Applying for a deduction, you can declare an amount of up to 2 million rubles for real estate and 3 million for interest. If the co-borrowers are not married, the right of ownership can be registered on one of them or both. However, each person will claim a tax deduction separately.
To do this, you need to fulfill simple conditions:
- Be the owner of the acquired housing, and not just a co-owner.
- Pay part of the mortgage and interest. It is important that payment for the issued loan comes from different accounts. The tax will have to prove that each co-borrower is involved in paying the mortgage.
Having figured out how the guarantor differs from the loan co-borrower, and having evaluated all the nuances, you can decide which option suits you best.