But not infrequently, this behavior in terms of borrowing makes only limited sense. On the contrary: Under certain circumstances , it can be more than sensible to have a second borrower at his side , because not infrequently this manifests itself in significantly improved credit conditions. In this respect, the following question is quite important when planning a loan: alone or in pairs? But then further questions are open and require a few answers. For example, when it actually makes sense to name a second borrower? Or the question of which requirements a second borrower must bring in order to have a correspondingly positive value when borrowing? Who is actually liable for impending loan default? Questions that we, as a bank, would like to answer.
When does a second borrower make sense?
Behind every bank loan, there is an endeavor by that bank to minimize the default risk of a loan . Each bank has a variety of acceptance criteria for a loan. Factors such as duration of employment, field of activity and branch of the applicant, amount of income and all credit criteria are the main elements. If, on the part of the borrower, it is clear that one of these criteria is already problematic, a second borrower can provide the necessary security. This second borrower, by virtue of its characteristics, can significantly contribute to increasing lending opportunities.
The benefits of another borrower in the loan
It follows, therefore, that a second borrower can generally increase the bank’s willingness to lend. However, this also means that the second borrower should also fulfill to the best or the highest possible standards that the bank places with regard to lending. A potential second borrower with a well-known credit rating, a fixed-term employment or even unemployment thus has virtually no value for the bank. However, if the second borrower has a high credit standing and solvency, this is usually reflected in the granting of a higher loan amount as well as improved credit conditions. This effect is particularly evident in the case of credit-based loans, since the second borrower higher income, better credit score etc. significantly improves the creditworthiness of the original claimant (1st borrower). This minimizes the credit default risk and the bank is thus clearly more open in terms of credit terms and thus more willing to negotiate.
The disadvantages as a second borrower
But with all the positive effects for the first borrower in such a situation, the willingness as a second borrower to enter into a loan project also poses a corresponding risk for that person. The following applies: If consumers jointly conclude a loan, BOTH borrowers are fully liable for this loan because they are jointly and severally liable to the lending bank. In practice, this means that in the event of a borrower’s insolvency, the bank may claim the entire amount of the debt from the other. In addition, the Schufa file of both persons is examined by the bank before the loan is granted. If she grants the loan, Schufa enters the loan both in the first and in the second borrower’s file.