What types of guarantee exist – Apply for a loan now!

What types of guarantee exist – Apply for a loan now!

What is an endorsement

Before we start talking about the types of guarantees that exist, we would like to make clear what this financial concept is. In this way, the next time you go to an entity for a loan and demand a guarantee, you will know what they are referring to.

The guarantees, as we explained a few lines above, are payment guarantees that a lender can demand in exchange for his money. These guarantees are usually requested when the client’s economic situation is not entirely acceptable to the bank. Or when very large quantities are requested.

Through the guarantee, the lender ensures that a third party or a guarantee covers the loan in case the borrower cannot do so at any given time.

What types of guarantee exist

What types of guarantee exist

Regarding the types of guarantees, we can classify them differently according to the following variables.

Guarantees according to the issuer

In this case we would find two different modalities.

  • The bank guarantee, where it is a financial entity that acquires the function of guarantor for the borrower.
  • The personal guarantee is the most frequent and can be issued by a person, both legal and physical. The personal guarantee is frequently used in financing for companies and even in consumer loans. They are usually free for the borrower. Therefore this should not pay any amount to obtain it.

Guarantees as financial products

Financial institutions can offer guarantees to their clients with which to guarantee that loans will be paid in case of economic instability. Within this type we can classify the guarantees in two large groups:

  • Technical guarantees This type of guarantee is something particular since it is answered by the client in case it breaches certain acquired obligations. They are designed for professionals who attend public tenders, supply contracts, works, etc. Through these guarantees, the financial institution ensures that the work or service that has been agreed upon will always be carried out.
  • Economic guarantees. They are the most frequent and those that are usually used by individuals. In this case, the financial institution assures the guarantor that his client will pay the deferred payment that he has acquired with him at all times. It is used for example in the granting of mortgages, to rent a house or for payments to the Treasury. This type of guarantee is subdivided into two modalities:
    • Commercial guarantees, to respond to possible purchases.
    • Financial guarantees, so that someone answers for us in financial transactions.

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