Regardless of the lender chosen for the subscription of your credit, the latter will imperatively want to have a loan guarantee. The latter aims to protect the bank in the event of default on the part of the borrower. But how exactly does it work? And how is it different from borrower insurance?
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Loan guarantee: why? How? ‘Or’ What ?
Any mortgage involves the establishment of a loan guarantee by the lending institution. This legal mechanism aims to limit the risks in the event of non-repayment of the loan by the borrower. It is, in a way, an act of surety, a fallback solution in the event of default of payment.
Depending on the type of credit guarantee, the bank is guaranteed to find the money loaned even if the borrower cannot repay it. Taking out a loan guarantee, regardless of its nature, automatically entails additional costs, like borrower insurance.
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The different types of loan guarantees
There are several types of loan guarantees :
- The mortgage: this is the most common option. The mortgaged property – often that for which the credit is granted – can therefore be seized and resold in court in the event of non-repayment of the debt.
- The joint surety: it works as in the context of a rental. A natural person acts as surety and is held responsible for the reimbursement of monthly payments in the event of default on the part of the subscriber.
- The IPPD (Registration in privilege of lender of money): works like the mortgage with the difference of requiring lower guarantee fees thanks to the absence of land registration tax.
- Civil servant deposit: only offered to public service employees.
- Surety company: bank guarantee via a company in exchange for participation in a guarantee fund.
Loan guarantee: how much does it cost?
The costs associated with taking out a loan guarantee come back to the borrower and can represent a significant part of the mortgage. They represent on average between 1 and 2% of the amount borrowed, a rate which varies according to the type of guarantee chosen with the lender. For a loan of € 200,000, the loan guarantee fees revolve around:
- 3000 € for a mortgage
- 2500 € for a deposit
- 1500 € for an IPPD
The choice of the surety can be interesting, in the sense that it does not require a notarial act and where it can possibly be negotiated. The IPPD and the mortgage, on the other hand, involve notary fees that cannot be negotiated.
Loan guarantee and borrower insurance: what are the differences?
Some borrowers tend to confuse these two concepts. But while borrower insurance covers the payment of monthly payments in the event of disability or illness, loan guarantee takes over for situations not covered by insurance. Both are therefore complementary.
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