Are you thinking about getting a loan? One of the terminologies you may come across are “co-borrower” and “guarantor,” which most people confuse their meanings with one another. One of the factors that financing firms, such as banks, assess is the lender’s ability to return what he or she lent. As a result, they create specific criteria that must be satisfied in order for loans to be approved. If the loan criterion is not satisfied, one of the proposed alternatives of the financial institution is to find a co-maker or commonly known as co-borrower. He or she (co-maker/co-borrower) should be a relative or a non-blood related trusted friend. The co-maker must comply with the same rules as the primary borrower. Depending on the financing institution, It is not necessarythat the co-borrower is to be a family member for In-House Financing. The name of the co-maker will also appear in the contract, and they will be obliged to sign it. In addition, the co-borrower shall be deemed a part-owner of the property.
Another option provided by the bank to the principal borrower to increase the chances of having an approved loan application is to be able to secure a “guarantor”. A guarantor, similarly, acts as an insurance of your creditworthiness as the debtor. Their participation decreases the risk of nonpayment since they are obligated to repay the loan if you are unable to do so because they signed the Guarantee Agreement. There are more alternatives available to give payment guarantee for your loan application despite having a low credit risk. Collateral is one of these. Lenders that need collateral for a secured loan are aiming to mitigate the risks connected with credit. The lender will try to match the kind of collateral with the loan being offered in order to ensure that the specific collateral provides enough security.
Collectively, there are many individuals in the Philippines who uses loans to handle life’s bills without hesitation, and it may be a wonderful strategy to ensure you receive what you need without having to save. However, it is critical to remember that there are alternatives available to borrowing, and you should always investigate these alternatives before entering into a financial arrangement with a lending provider. This article will provide more focus on the meaning of co-borrower and guarantor as both are available options in increasing the chances of having a loan application approved.
Meaning of Co-borrower
The meaning of a co-maker (or co-borrower), according to the Bangko Sentral ng Pilipinas, is a person who, through a contract, pledges to pay the principal borrower’s debt if he or she fails to do so. A co-maker does not get the loan proceeds, but he or she is equally liable for payment in the event of default. In other words, if you are a co-borrower, it indicates that you and another person have taken out a loan together. This means you are jointly liable for repaying it, and if one of you fails to make payments, the lender may pursue either of you for the debt.
Co-borrowers must normally have an excellent credit history as well as a decent credit score. As a result, the principal borrower is benefiting from the co-strong signer’s credit rating and increases the required criterion to be approved in the loan. A good co-borrower typically improves the chances of the principal borrower securing an auto loan, personal loan, housing loan, or mortgage. They may be just enough to assist the borrower qualify for a loan that they would not be able to get without the co-strong signer’s credit score and history.
Meaning of Guarantor
BSP defines Guarantor as “upon the demand of the Bangko Sentral ng Pilipinas shall promptly pay said debt, claim or liability to the person or persons entitled thereto under the laws of the Republic of the Philippines. Any such debt, claim or liability, not so promptly paid, shall, in the absence of stipulation as to the rate of interest, bear interest at such rate, as prescribed by the Monetary Board with existing laws and regulations. Said debts, claims or liabilities, interest thereon and any cost or expenses incidental to the collection thereof, shall be paid in the currency in which the obligations are expressed, or in which the costs or expenses were incurred.
In simpler terms, A person known as the guarantor pledges himself to the creditor by guaranty to complete the obligation of the major debtor if the latter fails to do so. A guarantor is a debt insurer who ensures that the obligation will be paid one way or another. The majority of people confuse a guarantor with a guarantee, which is another separate notion under our laws.
Co-borrower Vs. Guarantor
A co-borrower, as differentiated to a guarantor, can be compelled to pay the loan in the first place, in addition to insuring the obligation. There is no requirement to demonstrate the debtor’s inability to pay. On the other hand, the guarantor is only needed when there is demonstration of insolvency on the part of the principal debtor. Moreover, the distinction between the two is the availability of the advantage of excusal which is known to be stated in Article 2058 of the Civil Code, which provides that the guarantor cannot be forced to pay the creditor unless the latter has spent all the debtor’s property and has exhausted all legal options against the debtor.
In a real property loan guarantee contract, the guarantor pledges himself to the creditor to satisfy the primary debtor’s obligation if he fails to do so. A guarantee is distinguished by the advantage of excussion, which requires the creditor to exhaust all of the debtor’s property and exhaust all legal proceedings against the debtor before collecting from the guarantor. If the advantage of excussion is waived, the guarantor becomes directly accountable; hence, the agreement is not a guarantee but a co-maker.
Another essential point to understand is that a co-borrower is first accountable for the loan. A guarantor, on the other hand, is not liable unless the underlying borrower defaults and the lender initiates collection attempts against the borrower, depending on the conditions of the guaranty. As a result, a lender seeking a guarantee must normally go through a two-step legal procedure of demonstrating the borrower’s default and establishing the guarantor’s obligation under the guaranty.
While this article just touches on a few of the key differences between co-borrower and guarantor models, these disparities affect underwriting, securitization, loan modifications, default, and collection. As a result, of sticking to a single structure as a rule, banks should choose the proper structure for each transaction on an individual basis. When it comes to co-borrower vs guarantor, there is a distinction to be made.
The purpose of the exercise here is financial responsibility and a realistic appraisal of your financial well-being, as well as your creditworthiness. If you’re thinking of co-signing or guaranteeing a loan for someone, you should analyze all the loan’s variables and the primary borrower’s situation. Remember that if the borrower fails, you will be obligated to repay the loan, and their capacity to repay the loan will have an impact on your credit score.
Bria Homes not only provides affordable real estate, but we are also accommodating in accommodating your house loan application so that you can achieve your dream home. Chat with our customer service representative; we are happy to help you determine what is best for you and your family’s needs.