Have you ever had the experience of signing a loan contract with a relative, friend, or colleague to help them and become a guarantor? You think it's just a formality, but you don't expect it to get into endless trouble. Not only do you have to take on debts, but you also have to face legal sanctions, which even affect your credit history and work life. You regret it, but you can't get it back.
This is the guarantor's pit, and many people who have suffered losses have not turned over now. A guarantor is a legally responsible person, and once the debtor defaults, the guarantor is jointly and severally liable, even if the guarantor does not receive any benefit from it. The risk for the guarantor is very high, and the benefit is minimal. So, why are so many people willing to be guarantors? What are the reasons and hidden dangers behind this? This article will analyze from three aspects, hoping to give you some inspiration and warnings.
According to the China Guarantor Survey Report released in January 2023, there are currently more than 200 million guarantors in China, of which about 1500 million guarantors suffered losses because of the guarantee, and the average loss amount was 560,000 yuan. These losses mainly include the following:
The debtor evades repayment, and the guarantor is forced to repay the principal and interest, and even has to pay penalty interest and liquidated damages.
If the debtor is sued and the guarantor is jointly and severally sued, he will not only have to bear legal costs, but also face compulsory enforcement by the court, such as freezing assets, seizing wages, and restricting leaving the country.
The debtor's loan information was leaked, and the guarantor was harassed, threatened, intimidated, and even violently injured by criminals.
The debtor's borrowing affects the guarantor's credit history, resulting in the guarantor's inability to apply for financial services such as loans, credit cards, insurance, etc., or increasing interest rates and fees.
The debtor's borrowing destroys the guarantor's interpersonal relationship, resulting in disputes, conflicts, alienation, and even loss of trust and friendship between the guarantor and relatives, friends, colleagues, neighbors, etc.
These losses are not only financial, but also psychological, and even life-threatening. Some sponsors are unable to cope with the tremendous pressure and choose to commit suicide or run away. Some guarantors are stuck in a deeper quagmire because they can't get out of debt, such as gambling, drug abuse, crime, etc. Some sponsors become lonely and hopeless because they cannot salvage family and friendship. These are the tragedies of the guarantor, but also the tragedy of society.
So, why are so many people willing to be guarantors? What are the motivations and psychology behind this? According to the "China Guarantor Survey Report", the motivation and psychology of the guarantor can be divided into the following types:
Emotional motivation. This is one of the most common motivations, and one of the easiest to take advantage of. The guarantor agrees to the guarantee out of concern, trust, gratitude, sympathy and other emotions for relatives, friends or colleagues, and cannot bear to refuse their request for help, or wants to help them solve difficulties, or wants to maintain and enhance the relationship. This motive often lacks rational judgment, does not take into account the debtor's repayment ability and credit status, does not clarify the scope and duration of the guarantee, and does not sign an effective guarantee agreement, resulting in the guarantor falling into a passive and helpless situation.
Profit motive. This is the second most common type of motivation, and it is also the most dangerous one. The guarantor agrees to the guarantee out of consideration for its own interests, such as obtaining the debtor's return, benefit, gratitude, etc., or avoiding the debtor's resentment, revenge, slander, etc. This kind of motivation often has too high expectations or too low risk awareness, does not realize the debtor's willingness to repay and the degree of integrity, does not retain sufficient evidence and guarantees, and does not formulate a reasonable exit mechanism, resulting in losses and injuries to the guarantor.
Social motivation. This is the third most common type of motivation, and the one that is the most difficult to resist. The guarantor agrees to the guarantee out of the need to adapt and identify with the society, such as abiding by the norms, customs, morals, etc., or meeting the expectations, evaluations, and pressures of the society. This kind of motivation is often influenced and interfered with by the outside world, and the guarantor loses his autonomy and self-esteem by not adhering to his principles and positions, nor protecting his rights and dignity, let alone refusing unreasonable demands and interference, resulting in the loss of autonomy and self-esteem of the guarantor.
So, as guarantors, how should we deal with and avoid the pitfalls of guarantees? Here are some countermeasures and suggestions for your reference:
Refusal of Warranties. This is the simplest and most effective response, and it is also the one that requires the most courage and wisdom. The guarantor should understand that sponsorship is not an obligation, but an option. The guarantor has the right to refuse any unreasonable, illegal or unreasonable guarantee request, whether it is from relatives, friends, colleagues, or society. The sponsor should learn to say "no" and stand by their decision without being swayed or feeling guilty.
The guarantor should know that the refusal of the guarantee is not only to protect themselves, but also to help the debtor. Because the guarantee may make the debtor dependent and relaxed, causing them not to work hard to repay, or even continue to borrow, and eventually fall into a greater debt crisis. The guarantor should support and help the debtor in other ways, such as providing advice, encouragement, supervision, etc., so that they can solve the problem on their own, rather than taking responsibility for them.
Prudent Guarantee. If you really can't refuse a guarantee, or if you do have good reason and confidence to do so, then you should be cautious about making a guarantee and avoid acting blindly and impulsively. The guarantor should understand that the guarantee is a legal act with strict norms and requirements. The guarantor should do the following:
Investigate the debtor's repayment ability and credit status, understand the debtor's borrowing purpose, amount, term, interest rate, **, etc., judge the debtor's willingness to repay and the degree of creditworthiness, and assess the debtor's repayment risk and possible consequences.
Determine the scope and duration of the guarantee, clarify the principal, interest, penalty interest, liquidated damages, etc. of the guarantee, limit the amount and frequency of the guarantee, and agree on the termination conditions and methods of the guarantee, so as to avoid the unlimited expansion and extension of the guarantee.
A valid security agreement is signed, requiring the debtor and the borrower to provide true, complete and legal identification, loan contract, repayment plan, etc., requiring the debtor and the borrower to promise to repay the loan on time and providing the corresponding collateral or collateral, and requiring the debtor and the borrower to agree to give priority to repaying the guarantor's losses and compensating the guarantor's losses in the event of default.
Retain sufficient evidence and safeguards, such as the original, photocopy, scanned copy of the security agreement, etc., such as the debtor's and borrower's address, work unit, etc., such as the ownership certificate of the collateral or collateral, appraisal report, insurance policy, etc., such as the debtor's and borrower's repayment records, demand notices, litigation documents, etc.
Formulate a reasonable exit mechanism, such as requiring the debtor and the borrower to issue a repayment certificate or a certificate of release of the guarantee when the debtor repays the loan or the guarantee period expires, such as requiring the debtor and the borrower to repay the loan in advance or transfer the creditor's rights when the debtor defaults or the guarantee risk increases, and requires the debtor and the borrower to bear legal responsibility when the debtor is unable to repay the loan or the collateral or collateral is lost, or apply to the court for compulsory enforcement.
Transfer Guarantee. If you have become a guarantor and have already suffered losses or faced risks, then you should transfer the guarantor as soon as possible to reduce your burden and stress. The guarantor should know that sponsorship is not a lifelong obligation, but an option that can be changed. The guarantor may transfer the guarantee in one of the following ways:
Negotiate the transfer of security, that is, negotiate with the debtor and the borrower to find other guarantors or guarantee methods to replace their own guarantee liabilities and dissolve their own guarantee relationship, such as finding a third-party guarantee agency, insurance company, credit card company, etc., or requiring the debtor and the borrower to provide other collateral or collateral.
Legal transfer of security, that is, in accordance with the provisions of the law, to assert their own security rights, transfer their own security liabilities, such as after the debtor defaults, to recover their own losses from the debtor and the borrower, such as after the debtor is unable to repay, to claim compensation from the owner or administrator of the collateral or collateral, such as after the debtor and the borrower refuse to repay, to sue the court or apply for arbitration.
Market transfer guarantee, that is, the use of market mechanism, transfer their own security interests, get rid of their own security difficulties, such as when the debtor repays normally, their own security interests ** to other investors, such as when the debtor is difficult to repay, their own security interests are discounted or donated to other institutions, such as when the debtor has no hope of repayment, their security interests are invalidated or waived.
In short, guarantee is a high-risk, low-return behavior, which should not be carried out lightly, let alone blindly. The guarantor should choose appropriate countermeasures and suggestions according to his own situation and needs to avoid or reduce the pitfalls of the guarantee. The guarantor should understand that the sponsorship is not a simple help, but a complex responsibility. The guarantor should carefully consider whether it is able and willing to assume such responsibility. The guarantor should remember that sponsorship is not a choice of desperation, but a choice of rights. The guarantor should be brave enough to refuse, or cautiously sponsor, or transfer as soon as possible, protecting his interests and dignity.