What Is a Guarantor On a Loan?

A guarantor is a person or entity that agrees to repay a loan or debt if the original borrower is unable to do so. Unlike a co-borrower, a guarantor is only liable for a debt if the borrower defaults on the loan. Typically, a guarantor is not released of his or her legal obligation to repay the loan until the loan has been paid in full.

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Benefits

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Some businesses and individuals are unable to secure loans without a guarantor, possibly because of a lack of credit or assets or because of an existing debt load. Guarantors provide borrowers with the opportunity to secure a loan and make investments in their homes, education, businesses and/or personal lives.

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Disadvantages

If a borrower defaults on the loan, the guarantor is responsible for paying the loan in full. This payment may be due immediately. In many cases, a guarantor may not be removed from his loan obligations until the loan has been completely paid or the loan is refinanced in only the borrower's name.

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Considerations

A person or company should only agree to guarantee a loan if she feels she is capable of repaying the loan in full. Guarantors must also go through a loan application process, so borrowers should choose guarantors who are financially stable to ensure the loan application is approved.

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