Guarantors in switzerland: what you should know about guarantees
In certain cases, a guarantee can help a person gain access to housing, education or credit. A guarantee is a commitment made by one party to assume financial responsibility for another party.
In Switzerland, there are different types of guarantees, including rental guarantees, scholarship guarantees and loan guarantees. A guarantee agreement is always executed in writing and requires the consent of both parties.
In this article, you will learn how a surety agreement works in Switzerland and what conditions must be met for it to end. We also explain what legal and financial consequences a guarantor can have and what rights and obligations are associated with it.
What is a guarantee?
A guarantee is a written agreement between the creditor and the guarantor, under which the guarantor is obliged to pay the debtor’s debts in case of default. In other words, a guarantor assures a creditor that he will be liable for a debtor’s debts if the debtor is unable to fulfill his obligations.
In Switzerland, the guarantee is a common instrument to secure credits and loans. Banks and other lenders often require a guarantor to protect themselves against the risk of non-payment. A guarantor can be an individual or a legal entity and usually must have sufficient financial resources to be able to pay the debtor’s debts.
A surety remains in force until the debtor’s outstanding debts are paid in full or the creditor expressly releases the surety. A guarantee also ends if the guarantor dies or becomes insolvent. As a rule, the creditor will inform the guarantor of the debtor’s default and give him a reasonable period of time to pay the debt before calling on the guarantor to do so.
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Guarantors in Switzerland: How a guarantee runs and when it ends
A surety bond is a contractual security whereby a person (the guarantor) agrees to fulfill or perform a liability of the principal debtor in the event that the principal debtor becomes insolvent. In Switzerland, there are two types of surety: the directly enforceable surety and the directly non-enforceable surety.
The directly enforceable guarantee is the most common type of guarantee in Switzerland. In this case, the guarantor is liable without observing the defense of anticipatory action. This means that the creditor must first demand payment from the debtor before he can claim against the guarantor.
In the case of a directly enforceable guarantee, on the other hand, the guarantor is only liable if the debtor is insolvent and the creditor has unsuccessfully attempted to collect the debt from the debtor. The guarantor can therefore invoke the defense of anticipatory action, which states that the creditor must first claim against the debtor.
The guarantee usually ends with the repayment of the debt in question. In this case, it is important to note that the guarantor can also fulfill his liability by a satisfactory installment payment by the debtor. In the case of a directly enforceable guarantee, the guarantor can terminate the liability by terminating the guarantee contract, but only if the creditor agrees to this termination.
In the case of a guarantee, all contracting parties should carefully check which conditions are included in the guarantee agreement and what liability exists vis-à-vis the creditor. A good contract and a careful examination of the contract can save a lot of trouble and costs in case of arising difficulties.
The end of a guarantee
If you are a guarantor in Switzerland, it is important to know when a guarantee ends. A surety bond is a contract between the guarantor, the creditor and the debtor. The guarantor assumes the obligation to be liable for the debt of the debtor in case the debtor is unable to pay.
A surety bond usually ends when the debtor has paid his debt in full. In this case the guarantor is released from his obligation. A guarantee may also end if it is limited in time or earmarked for a specific purpose. For example, a guarantee for a rental deposit may end when the tenant moves out of the lease and leaves the apartment in good condition.
However, there are also cases where a guarantee does not end even though the debtor has paid his debt. For example, if the guarantor has signed an open-ended guarantee, he will continue to be liable for the debtor’s debts as long as the debtor does not fulfill his obligations.
It is therefore important to be clear about the conditions and the end of the guarantee before signing it and to seek expert advice if necessary.
What are the risks of a guarantee?
A surety bond is an agreement between a creditor and a guarantor in which the guarantor is liable for ensuring that the borrower meets its obligations to the creditor. If the borrower is not able to pay his debts, the guarantor must answer for it.
One of the biggest risks with a guarantee is that the guarantor will be left holding the debt in the event of an emergency. Many people are not aware that a surety entails a considerable financial risk. Often, a guarantee is entered into for emotional reasons – for example, to help a good friend – without being aware of the consequences.
Another risk of a guarantee is that the guarantor is also liable for interest and costs. If the borrower can’t pay its debts, those costs can quickly escalate immeasurably. In this case, the guarantor must not only be liable for the original sum, but also for the interest and all collection costs.
- In summary, a surety represents a high risk for the guarantor.
- Before one enters into a guarantee, one should therefore be absolutely clear about the consequences and make a well-founded decision.
- It is also advisable to take on a guarantee only in exceptional cases and, if necessary, to seek professional advice.
The conclusion to the guarantee in Switzerland
The surety is an important element in Swiss law, which makes it possible to secure financial obligations. When a person enters into a surety bond, he or she undertakes to be liable for the debts of another person or company. It is important to note that a surety is not valid indefinitely and different conditions must be met for it to end.
A guaranty can end in a number of ways, such as a termination, the fulfillment of obligations, or the death of the guarantor or principal debtor. It is also possible for a guarantee to be limited in time. When a guarantee ends, however, always depends on the individual agreements between the guarantor and the principal debtor.
Overall, the guarantee is a useful tool that makes it easier to secure financing and loans. Nevertheless, it is important to inform yourself in advance exactly about the conditions and consequences of a guarantee in order to avoid unpleasant surprises. A comprehensive comparison of the various offers can also help to conclude the best surety bond.