Monday, 30 November, 2020

Payday Loan and Bank Guarantees

There are many customers who have doubts when it comes to knowing the types of existing guarantees and, it should be noted that the guarantees are always guarantees of payment. Through this figure, the fulfillment of an obligation is guaranteed, either for payment or for the provision of a service. In this way, a bilateral obligational relationship incorporates a third party that, through its intervention, ensures compliance with the main obligation.

There are different types of guarantees based on three variables: the obligation that guarantees, the issuer the guarantee and the type of financial product.

First, there is a distinction between the guarantee required by the financial institution itself and the guarantee offered as a product . The fundamental difference between the two is the obligation that guarantees. Thus, the bank usually asks its clients for a guarantee as collateral for the obligations they contract with the bank. For example, when you grant a credit you can demand that a third party endorse that operation. That is to say, that third person commits with the bank to that, in case that the quotas of said credit do not become effective, the bank entity can demand that it pays in its place. On the other hand, financial institutions also grant guarantees to their clients against third parties, for example, to suppliers.

Personal or bank guarantees.

This is a classification identical to the previous one but from the point of view of the individual, physical or legal, which undertakes to assume responsibility in case the principal debtor does not do so. Thus, the guarantees will be personal if it is a third person, physical or legal, who assumes responsibility to the bank. On the contrary, the bank guarantee will be that in which it is the banking entity itself that backs the client before a certain transaction with a third party. For example, the latter case occurs in those cases in which an employer contracts with a supplier the supply of a good for a large amount and, not having that amount in cash, goes to the bank for it to endorse it against your provider

Finally, another classification of the guarantees is made based on the type of financial product they represent. Thus, we can speak of economic guarantee when the financial institution responds to a deferred payment, that is, deferred in time. This type of guarantee is subdivided, in turn, into commercial guarantees, when the guaranteed transaction is commercial, and financial guarantees, when what is guaranteed is a financial operation (loan, credit, bill of exchange, promissory notes). On the contrary, the guarantee can also be technical , when the financial institution responds to a third party of a non-economic obligation, but guarantees a work or service provision. These guarantees are used very often in public tender, for example.

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