Guaranteeing a loan for a family member or friend so they can get a loan or mortgage is a common gesture of trust, but it's also one of the financial decisions with the greatest potential risk you can take on for someone else, precisely because its consequences aren't always fully understood before signing.
What it means to be a guarantor
When you guarantee a loan, you commit to covering the debt with your own assets if the borrower (the person you're guaranteeing) stops paying. You're not simply a "trusted reference": legally, you become liable for that debt to the bank, under the terms agreed in the specific guarantee.
Simple guarantee vs. joint and several guarantee: a crucial difference
- Simple guarantee (aval simple): the bank must first pursue the primary borrower and exhaust the possibilities of recovery from their assets before it can go after the guarantor (a benefit known as "beneficio de excusión").
- Joint and several guarantee (aval solidario): the bank can go directly after the guarantor from the first missed payment, with no need to first exhaust collection avenues against the primary borrower. This is, by far, the most common type of guarantee in Spanish banking practice, and the one that carries the greatest real risk for the guarantor.
Before signing any guarantee, it's essential to check which of the two types you're signing, since the practical difference in your risk exposure is enormous.
How far the guarantor's liability extends
As a general rule, the guarantor is liable with all their present and future assets, not just a specific asset or amount, unless the guarantee has been expressly limited to a set maximum amount (known as a limited guarantee). Signing a guarantee without that express limit means potentially unlimited exposure of your assets against the guaranteed debt.
How to limit the risk if you decide to act as guarantor
- Whenever possible, negotiate a limited guarantee capped at a specific maximum amount, rather than an unlimited guarantee over all your assets.
- Request that the guarantee have a set duration, not an indefinite one, and that it be automatically released once a sufficient portion of the debt has been repaid or after an agreed period.
- Stay regularly informed about the status of the guaranteed debt, since as a guarantor you have the right to request that information from the bank.
What happens to your own borrowing capacity while you're a guarantor
While a guarantee is in effect, that guaranteed debt may count, in whole or in part, toward your own debt level (reflected in the CIRBE credit register) for purposes of other banks assessing your capacity to take on additional financing, even though you're not directly paying that debt day to day.
Run the numbers before signing
Before acting as a guarantor, it's reasonable to precisely calculate the payment and total cost of the loan you're guaranteeing, to understand exactly what you'd be committing to in the worst-case scenario. Our personal loan calculator and our mortgage calculator let you run those numbers in advance.