In this article, we’re answering “what does guarantor mean?”
This will include a look at who is a guarantor, when it is necessary, and answering common questions we receive about guarantors.
This article is part of our free series on banking, ranging from opening a private bank account to navigating account opening abroad, which you can access by clicking here.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- What Does Guarantor Mean?
- Who Is Considered a Guarantor?
- Why Would Someone Need a Guarantor?
- Frequently Asked Questions
- Do You Want Help Opening Bank Accounts?
What Does Guarantor Mean?
Guarantor means that an individual agrees to meet the financial obligations of another person that does not qualify for financing on their own merit. In other words, in the event that the person requiring a guarantor is unable or unwilling to pay their monthly installments, the guarantor agrees to pay the installments for them.
Who Is Considered a Guarantor?
Someone that agrees to meet the financial obligations of another person in the event that they are unable (or unwilling) to meet the obligations on their own.
Importantly, the contracting party to whom the guarantor guarantees payment needs to trust that the guarantor is both capable and willing to meet these obligations. In most cases, this trust is quantified through an acceptable credit history and income verification.
Why Would Someone Need a Guarantor?
Why someone would need a guarantor will depend on their specific circumstances. But, in most cases, it is because the individual does not have sufficient credit history on their own in order to qualify for the specific mortgage or loan that they are applying for.
That said, there are a wide range of reasons why someone may not have sufficient credit history.
For example, they may have not established credit history over the course of their life. This may be because they did not previously access credit products.
Likewise, if an individual is new to a country they will not have credit history locally. This can disqualify them from products offered by many (though not all) financial institutions.
Finally, it’s also possible that someone has a bad credit history as a result of poorly managing the repayment of credit products in the past.
What Are Guarantor Loans?
Guarantor loans refer to loans, mortgages, and other forms of financial credit where an individual is unable to qualify on their own. As a result, in order to qualify for these loans, a guarantee is required from another person to qualify. In most cases, this type of loan involves a financial institution, the borrower, and a family member as the guarantor.
What Is a Guarantee Agreement?
A guarantee agreement refers to a contract where a guarantor is required to provide a guarantee of payment on behalf of another party (the contracting party). In the event that the contracting party fails to meet their financial obligations, the guarantor will be contractually responsible for meeting their obligations.
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Frequently Asked Questions
Below are three of the most common questions that we receive from people looking into what a guarantor means. If you have further questions you would like answered, don’t hesitate to get in touch with us directly.
How Do You Qualify as a Guarantor?
How you qualify will depend on the specific situation. More specifically, qualifying will depend on the specific requirements set by the financial institution, lender, or other party in the contractual arrangement. In most cases, someone can qualify as a guarantor if they are of legal age, have reasonable credit history, and can demonstrate consistent income.
Can I Be a Guarantor With Bad Credit?
No, you cannot be a guarantor with bad credit. This is because it needs to be someone that the financial institution trusts to meet financial obligations. In fact, in most cases, individuals with bad credit require a guarantor in order to secure financing.
What Does Guarantor Mean for Insurance?
For insurance, guarantor means the party responsible for the fulfillment of payment if a principal is unable to meet the financial obligations of a contract or policy.
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