As a borrower is generally referred to the one who owes the loan, he receives colloquially. Prerequisite for the loan payment is the conclusion of the loan agreement. This in turn is preceded by an individual credit rating, the creditworthiness check.
When does a second borrower make sense?
The borrower as an individual must, based on his economic situation, be able to fully meet the credit agreement. This includes being able to repay the loan amount plus credit interest on time and in full.
Also, or often when the creditworthiness of the loan seeker is not sufficiently good, the credit is urgently needed. In this situation, a second borrower with his own additional credit rating can be the solution.
The lender is keen to literally reduce its lending risk to zero. This credit default risk exists from the moment the loan is disbursed, that is, transferred from the lender’s account to the borrower’s account. He now has the money and the lender has to rely on the contractual repayment.
The creditworthiness of the applicant can only be checked and evaluated as a snapshot at the time of application. Nobody knows what happens or can happen afterwards.
In this respect, the lender is on a safer side if he can rely in terms of creditworthiness not only on the original, but on yet another, the second borrower.
The requirements for a loan
In everyday banking, the creditworthiness of the individual borrower is sufficient for a normal consumer or consumer credit. The only requirement is its sufficiently good creditworthiness. One basis for this is the credit bureau score of the applicant. Its expressiveness relates to the contractual obligations of the loan seeker as well as its payment reliability.
The credit bureau score is a single number, expressed in percentage points and visually shown in the three warning colors green, yellow and red. If the score is very good, good or at least satisfactory, that is green or yellow, the creditor will be the only borrower to satisfy the applicant.
If its creditworthiness is negative in relation to the credit default risk of the credit institution, ie displayed in dark yellow or red, then the creditworthiness of the applicant is not sufficiently good. Without external help, the loan application is rejected because of a lack of creditworthiness.
Compensate for lack of creditworthiness
One or more other borrowers can now help. Usually, a second borrower is sufficient enough. The sole purpose of the lender is to improve the borrower’s lack of creditworthiness by that of another borrower, to raise them to the desired level, so to speak.
Theoretically, this would be possible with more than two borrowers with a likewise weak creditworthiness, but practically neither desired nor reasonable. The applicant must therefore teach a second, a co-borrower in this situation. Its or its common credit rating is so good in the end that for the lender’s credit default risk is completely eliminated.
It is helpful in this situation if both borrowers have what they say is a positive credit bureau. The credit bureau database should not contain any negative marks at the expense of one or the other. As a rule, the lack of creditworthiness of the loan seeker is due to the low level of his earned income. The expenditure page with the credit bureau score is correct, but not the revenue side.
5 tips for the loan with second borrower
For borrowing with a second borrower, the following details are worth knowing.
1. Consider equality
With respect to the loan agreement, the first and second borrowers are equal and equally obligated contractors ; quite in contrast to their internal relationship. Both borrowers appear by name in the contract and both sign the loan income. You are also jointly and severally liable and not pro rata. One is responsible for the entire blame of the other, so it is not halved or split differently.
The lender is free to choose and to whom to contact in relation to the performance of the contract. As long as everything goes well, it is based on the approach of the two borrowers. Only then, or the moment it gets stuck, does the lender make his own decision.
2. Consider the internal relationship
In the internal relationship, a distinction is made between several criteria in the main and secondary debtors, in the first and the second borrower. Formally, the person with the higher income is considered the first borrower. In fact, it is the one with the lower income. He is the actual applicant and loan seeker. The second borrower is called in only because of the applicant’s lack of creditworthiness. In this respect, the loan amount is paid to the applicant and thus to those with the low credit rating.
In the internal relationship, both borrowers clarify who will take on the monthly debt service from them. That can be either of them. The only decisive factor is the timely receipt of payment from the lender.
3. Equal conditions for both borrowers
Both borrowers must equally meet the requirements for borrowing. Apart from the credit rating, this includes very general conditions of the banks and savings banks. Thus, the second borrower must be legally and legally able to have his first or permanent residence in Germany, and he must maintain his salary account as a checking account with a German credit institution.
The local branch office will make a copy of the identity card or passport together with the proof of residence during the customer discussion.
In all other cases, the Postident or Videoident method is offered. One like the other is free and done in five minutes.
4. Pay attention to the credit bureau
The loan is a contractual liability for both borrowers alike. If the lender is a business partner of the private credit agency credit bureau, the loan will be registered in the personal credit bureau of both borrowers. The reason for this is their joint and several liability. The borrower who does not benefit from the loan payment must be aware that his personal credit bureau score is affected by the loan agreement.
Against this background, it is quite worth considering opting for a loan without credit bureau. The legal situation remains the same, while the entry into the credit bureau accounts for both borrowers. At the credit bureau the loan is like not at all.
5. Choose a good second borrower
There are no rules or regulations for the selection of the second borrower. Naturally, to help in this personal or even precarious situation, a family member, a godfather or a close relative is more likely to be addressed than the work colleague or friend.
For its part, the lender will and should be careful to ensure that the second borrower’s lack of creditworthiness is actually improved to the extent that a credit default risk is eliminated.
The second borrower must be called in de facto, not just on paper; otherwise it could be a immoral legal transaction under § 138 BGB, the Civil Code.