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AREV: GUARANTEEING A LOAN (COSIGNERS)
In certain instances where a home buyer does not meet underwriting criteria, the bank may require a cosigner to guarantee the loan. The current practice of banks is to stipulate that they can collect from either the borrower or guarantor at their own discretion. Such a guarantor is referred to in halachah as an areiv kablan. The Shulchan Aruch (170:1) prohibits a Jew from being such a guarantor for an interest loan on behalf of another Jew. This prohibition would apply any time one uses a Jewish guarantor on an interest loan, such as for a credit card, car loan, or mortgage. If one does borrow with interest and uses a cosigner, a heter iska must be used.
There are many instances in which the bank will require a cosigner, but in reality refer to the cosigner as a co-borrower. The definition of “co-borrower” is that each party is actually borrowing half the money from the bank. The co-borrower then lends his half of the loan to the buyer to use to purchase his home. As the buyer repays the loan, he is in effect repaying the co-borrower of the loan. Since interest is being paid to the bank on the co-borrower’s behalf, such an agreement would require a heter iska as well.
There are three types of guarantors discussed in halachah in regard to ribbis:
Arev: A standard co-signer, where the lender must first demand payment from the borrower. The guarantor may only be approached after first claiming it from the lender in bais din.
Arev kablan: Where the lender has the right to demand payment either from the guarantor or from the borrower equally.
Arev shluf dutz: Where the lender’s only claim is to the guarantor. The guarantor accepts sole responsibility for the loan.