Taking out a loan creates financial flexibility and is particularly interesting in times of low interest rates. We offer you the opportunity to compare loans easily and conveniently in order to get the best possible conditions.
Before taking out a loan, you should also consider the options for borrowing. This makes it possible to take on a liability together with a second borrower. But what are the legal consequences for the contract, what are the advantages for the borrowers and are there any risks with this model?
Why should you take out a loan with a second borrower?
As soon as two contracting parties decide to take out a loan together, both borrowers are deemed to be contracting parties with the same obligation. This means that both are also responsible for repaying the total loan.
Despite the equality in liability, a formal distinction is nevertheless made between the main and secondary debtors. As a rule, the loan seeker with the lower credit rating is the main debtor, whereas the secondary debtor has a higher credit rating. In most cases, the applicant is the primary debtor.
What are the advantages of a second borrower when applying for a loan?
Now the question arises, why it makes sense to involve a second borrower at all. This question is easy to answer on the surface. By adding a second borrower, the loan seeker can significantly increase his credit rating and subsequently receive loans that the bank might not otherwise be able to grant.
However, there are other advantages to this approach. On the one hand, loan interest rates decrease because the lender calculates with a lower default risk and is consequently able to offer better loan offers. Since both borrowers are jointly and severally liable for the installment loan, the bank could claim the remaining debt from both borrowers if the worst comes to the worst. What sounds so bad here is not the rule in everyday life. Most loans are properly repaid over the term.
Who should bet on a second borrower?
A second borrower always makes sense if your credit rating is not the best. However, this does not mean any credit entries, but the monthly income. Because of course every loan has to be paid off, which is why banks require a small household bill. Even if you get by with the money a month, it may not be enough for a loan.
At this point, a second borrower can carry out the required loan with his income. Because his salary is also taken into account in the loan application. The common loan application is particularly useful for married couples because better creditworthiness can lead to low interest rates. At this point, however, it should be noted that simply adding a second person to the loan application is not sufficient. This person must have an appropriate credit rating.
What are the requirements for the second borrower?
When checking creditworthiness, financial institutions check the creditworthiness of both borrowers. Accordingly, the second borrower must do the same, for example
- legally competent and resident in the country,
- have a regular income,
- as well as confirm his identity.
The lender also checks whether it can be assumed that the creditworthiness of the second borrower could actually absorb the risk of insolvency.
What risks does the second borrower take with the guarantee?
The second borrower should be aware that he is liable for the repayment of the remaining debt over the term of the loan. This is certainly less problematic for spouses than for friends or acquaintances. Should one be divided in a dispute, for example, there is still the obligation for the loan.
At the same time, as a guarantor, you should think very carefully about whether you should make your credit rating available to the person in question. For people with low payment behavior, you should think very carefully. Furthermore, you should also be aware that such a guarantee also reduces your own credit rating. If you want to take out a loan yourself, such a loan guarantee can have a negative impact on loan interest rates because the full credit rating is no longer available.
Can the second borrower subsequently get out of the loan agreement?
If the second borrower wishes to leave the contract, this is only possible with the consent of the lender. The latter is usually only granted by banks as soon as the current financial situation of the first borrower ensures that a repayment of the loan is guaranteed. You should therefore think about this option before concluding the contract and, if necessary, make contractual agreements with your lender.
Overall, it often makes sense to take out a loan with a second borrower. The debtor in particular should, however, find out about the risks in advance and ensure that the relationship of trust with the first borrower allows such a contract. As a result, you will find a suitable loan here, regardless of whether you are searching alone or together with a second borrower.