The suretyship, also called fidejussion, is a contract of engagement by which a natural or legal person guarantees the payment of the debt of another. This guarantee comes into play when the borrower is, for one reason or another, unable to repay his loan. An assessment at http://www.dawncities.com/can-i-refinance-a-car-loan-with-bad-credit-get-an-easy-car-loan-for-bad-credit/
For the bank, it is, therefore, a reliable means of obtaining payment of the amount remaining due in the event of default on the part of the borrower. How does the bond work more precisely? Does the borrower have to have a bond to get a payday loan? Find all the answers to your questions in our special bond file!
Payday loan surety: what is its interest for the borrower?
If the fact of having a surety for his payday loan is a security for the bank – it assures him the repayment of the credit, – it is also it for the borrower himself!
Because who says default in reimbursement says the risk of late penalties. And cumulated, these famous penalties can represent a significant amount, which would be added to that of the monthly payments.
Sanctions could also fall on him, such as a filing at the Fine Bank. Thanks to the bond, the borrower escapes these sanctions. It is, therefore, a solution of choice to ensure your payday loan.
Did you know? Bonding, a long-standing employment contract… In the eighth century, the Romans had recourse to the bond. It is to say if this practice is old!
Thanks to the surety, goodbye borrower insurance?
Completely! By taking a bond to cover his payday loan, the borrower also escapes the costs related to insurance, since there is no need to take out one. Generally, for a payday loan, borrower insurance represents 0.4% of the amount borrowed.
But beware, this rate applies to the year! The duration of the loan therefore also has an impact on the cost of insurance. According to the terms of the contract, its calculation will be done either on the initial amount of the loan, or on the amount remaining due, that is to say, minus the repayments already made.
Let’s take an example :
Jonathan needs 35,000 dollars. He signs a credit contract over a period of 5 years. Insurance is calculated on the initial amount. Per year, it will cost him: 35,000 × 0.4% = 140 dollars (or 11.67 dollars per month). In total, Jonathan will pay as follows: 140 × 5 years = 700 dollars of insurance.
Be careful however on one point: a deposit chosen in your entourage (parent, friend …) will not involve additional costs, but a surety company, if! And these costs can exceed those of insurance: it is worth thinking about it twice, therefore.
Is the bond obligatory for a payday loan?
No, the guarantee for a payday loan is absolutely not mandatory, as is the case for any other type of credit. However, the institution granting the loan may require the borrower to provide it with another guarantee.
What type of warranty, will you tell us? In fact, credit guarantees can take many forms. In addition to the surety and insurance, the borrower can notably cover his payday loan via a financial investment (life insurance, passbook…) or a pledge (car, for example).
Good to know: insurance is essential? Delegate!
When the borrower has no personal guarantee, insurance is self-imposed. This can be offered by the lender, in parallel with the payday loan contract.
However, the borrower is not required to accept it. He is free to canvass other insurers and sign an insurance contract elsewhere. In this case, we are talking about the delegation of insurance: a good way to lower your borrowing rate!