Stop being a credit guarantor It’s not easy, but it’s not impossible🇧🇷 It mainly depends on the financial institution, but the guarantor can also make a difference in the process. Taking into account the difficulties inherent in this commitment, you should consider carefully whether you accept to be guarantor, especially if it is for a friend or acquaintance, that is, who not a direct relative. Even so, if you agree to be a guarantor, you must be informed about what to do so that debt repayment does not immediately fall on you.
Why do banks ask for guarantors when they grant a loan?
Banks ask for guarantors when they consider that there is a risk that the person (or persons) to whom they are granting credit will notDo not meet your financial commitments🇧🇷 In this case, the guarantor enters as substitute in your payment.But, How does the bank come to this conclusion?
Credit application analysis
Upon receiving a request for granting credit, the financial institution will analyze the financial situation of the borrower🇧🇷 That is, you will check if you have the financial capacity to repay the amount you are asking. To do so, it will take into account the earnings and financial charges that you already have, as well as your credit historythat is, if it has already been in default. Thus, start by calculate the current effort rate and the effort rate you will be left with if the credit is approved🇧🇷 To determine this value, banks use the credit liability map which you obtain from the Bank of Portugal. This contains all the credits (and credit lines such as the credit card ceiling) that the person applying for the credit has in the financial system. Note, when analyzing the Credit Responsibility Map, financial entities do not know which other entities you requested credit from. They only know the initial value of the credit, how much you still owe, and the monthly installment of each one. After analyzing the financial situation of the person applying for the credit, the financial institution decides whether there are conditions to grant credit or not.Also read: Map of Credit Responsibilities: What is it and what is it for?
Request for guarantees
If you decide to grant the credit, the bank will condition its approval to obtaining guarantees. In other words, even considering that the applicant has the financial capacity to pay the loan at that time, the financial situation of each person can change at any time. Soon, they ask for an additional guarantee to ensure the repayment of the loaned amount.Warranties can be different. Can be the pledge of a term deposit (which will be liquidated if you fail to pay), the mortgage on a property (which will be enforced in the event of non-compliance) or a guarantor (ie someone who pays if the creditor fails to pay). Also read: Guarantor and guarantor: What are the differences?
If you agree to be a guarantor, the bank will analyze your financial situation
If the bank asked your friend to get a guarantor, then go analyze the financial situation of whoever is presented as a guarantor. Thus, you will analyze your financial situation in exactly the same way as you did the potential creditor. And decide whether you have the capacity to replace him in paying the debt, if he defaults.
Do not waive the benefit of prior excussion
Before signing the contract, make sure that it says that, as guarantor, does not waive the benefit of prior exclusion.In practice, the benefit of prior exclusion consists in possibility for the guarantor to oppose the execution of his assets to pay the debt to the detriment of the debtor’s assets. In other words, the bank can only demand payment of the debt after executing the debtor’s assets.If in the contract there is no mention of the benefit of prior exclusion, it is as if it did not exist, that is, you have dispensed with it. And, therefore, as a guarantor, he will be the first to whom the bank goes to pay the amount in debt. it also protects you from the debtorwhich thus already knows that it will be pledged before the guarantor is called to settle the debt that he did not pay.
What can happen if the creditor fails to pay
If the creditor fails to pay, as guarantor the debt becomes yours. And the financial entity will charge you the amount owed. So, the consequences are identical to those of any other non-compliance: your name may be included in the Banco de Portugal blacklist they may seize your salary you will have difficulties in contracting new credits
Stop being a guarantor of a loan
If at a certain point you regret being a guarantor of a loan, as you signed a contract, it will not be easy to disassociate yourself. You cannot go to the financial entity and simply claim that you already want to be a guarantor🇧🇷 Remember that the financial entity considered at the time of granting the credit that the debtor might not be able to pay the loan and ensured that it would do it for him. Therefore, it will not simply authorize.
Are there situations in which the bank can authorize you to stop being a guarantor?
Yup. For the bank to validate your exit from the contract, as guarantor, you must be presented with a new guarantor, or a guarantee to replace it. And the bank will have to accept. In practical terms, it means reviewing the credit agreement, and the bank may refuse if it considers that the solution presented is worse than keeping you as a guarantor.
What You Can Do If You Are Called To Pay The Debt
If you are called upon to pay the debt, and if you have not waived the benefit of prior foreclosure, make sure that they first foreclosed on the debtor’s assets.Also check that, since you signed the contract, there have been no changes to it. Note, the role of guarantor only remains if the contract you signed is valid🇧🇷 If the borrower has negotiated a new contract, for example a spread reduction or a term change, as the conditions are already different, from a legal point of view, he is no longer a guarantor.If they have already executed the debtor’s assets, do not have the benefit of prior execution, or the contract has not been amended, you have to pay the debt🇧🇷 Otherwise, it will appear as being in default on your Bank of Portugal Credit Responsibilities Map. you still have some rights, namely🇧🇷
For the benefit of the term, the guarantor has the right to pay the debt as the debtor, i.e. until the end of the term.Under the terms of the contracts, when the debtor of the same failure the payment of a debt installment, it is considered due in full🇧🇷 And the bank can demand full payment of the debt. Ie, the benefit of the term for the debtor is extinguished.But this does not extinguish for the guarantor, which can meet the initial payment plan. However, if you waive this right in the surety agreement or if, after the bank has asked you to pay the outstanding installments, you fail to do so, you lose the benefit of the term. That is, you will have to pay the debt in full soon.
right of return
If you pay your friend’s default debt, by law, you become the new creditor. Soon, you can ask your friend to pay the amount you paid for him🇧🇷
Decline payment if you know the debtor has money in the bank
The law grants the guarantor the right to refuse payment of a debt to the creditor, if the debtor has a claim on his creditor and one compensates the other🇧🇷 In other words, if your friend has a term deposit or capitalization insurance at the bank where he failed to pay the loan, as a guarantor he can refuse to pay the loan that the debtor failed to pay.
Guarantor does not keep the property of the good
As the saying goes “friends, friends, business aside”. Before agreeing to be someone’s guarantor, remember that if the bank is asking for a guarantor, it’s because your friend’s income, as well as his assets, are not enough to settle the debt it will contract.So be careful, it will be your assets to answer for the debt that others contracted🇧🇷 On the other hand, even if you are left to pay a debt due to default by the debtor, a guarantor does not become the owner of the property in question🇧🇷 In other words, if your friend took out a loan to buy a car, then defaulted on the loan by substituting for him to pay the loan, the car is not yours.