What is a guarantor? (with photos)

A parent who signs a loan for a child is considered a guarantor.

Guarantor is a person or company that guarantees the payment of a loan or other type of debt. Typically, that person or company agrees to pay off someone else’s debt or fulfill that person’s obligations if he or she fails to do so. The term is most commonly used in reference to financial assistance. A parent who signs off on a student loan for a child may be considered a guarantor; if the child fails to pay his debt, the parent will be held responsible for the remainder of the loan.

Why guarantors are used

A guarantor is a person or company that guarantees the payment of a loan.

Generally, loan seekers use guarantors if they believe they will not be able to secure a loan on their own. This may be the case for applicants with bad credit or no credit history. Individuals and legal entities can act as guarantors or have guarantors for their loans. In the case of multiple guarantors, usually each one is responsible for the entire amount of the debt. Some lending institutions require guarantors to be guaranteed by a certain amount – usually a percentage of the loan – so that the institution can be sure the money is recoverable.

The use of guarantor in a loan application does not guarantee that the loan will be approved, because the person guaranteeing the loan is considered part of the loan application, therefore, the credit rating of that person or company must be evaluated along with the loan applicant. or candidates. If the credit institution believes that the guarantor cannot repay the debt if the principal applicant fails to repay the loan, the credit institution will not approve the loan. When looking for a guarantor, anyone who needs a loan should keep this in mind.

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Risks of being a guarantor

Before agreeing to serve as a guarantor, the person must assess the credit, income, and expenses of the primary borrower to determine whether he is able to repay the loan. The person guaranteeing the loan must be prepared to repay the full amount if necessary and must not agree to guarantee a loan if they are not financially able to do so. Anyone considering becoming a guarantor must obtain a copy of the loan agreement and must read and fully understand it before signing it. After signing the contract, he has no way of backing out of the deal.

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