In this article, we’re answering “what’s a guarantor?”
This will include a breakdown of the responsibilities of a guarantor in the world of banking along with a comparison to other responsible parties like cosigners.
Of course, we’ll also be answering common questions we receive on the topic of guarantors as well.
This article is part of our free series on banking, starting with how to open a bank account, 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’s a Guarantor?
- What Does It Mean if You Have a Guarantor?
- Frequently Asked Questions
- Ready to Explore Your Options?
What’s a Guarantor?
A guarantor is an individual that legally agrees to fulfill the financial obligations of another person if they are unable or unwilling to do so themselves. Importantly, the guarantor typically has a more established credit profile than the individual requiring the guarantee. As a result, the lender has additional security and confidence that the terms of the related financial transaction will be upheld.
Not surprisingly, due to the level of responsibility that a guarantor assumes, most guarantors are family members or very close friends of the individual engaging in the transaction. That said, it is possible for a private party to act as a guarantor. However, it is highly unusual and unlikely that this would happen.
What Does It Mean if You Have a Guarantor?
If you have a guarantor, it effectively means that someone has committed to meeting your financial obligations if you choose not to. In other words, if for any reason you are no longer able to meet your obligations, a guarantor will be responsible for doing this on your behalf.
While this sounds similar to a cosigner on a loan or other engagement, there are differences, which we’ll explain below.
Is a Guarantor the Same as a Cosigner on a Loan?
The main difference between a guarantor and a cosigner on a loan is that a cosigner immediately carries the same responsibility for repayment as the individual taking out the loan, while the guarantor only assumes responsibility after the borrower is no longer able to meet their commitments.
In other words, a cosigner is equal in responsibility and involvement as the original borrower while a guarantor is an extra level of security for the lender.
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Frequently Asked Questions
Below are three of the most common questions that we receive from people looking into what’s a guarantor. 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?
You can qualify as a guarantor if you have an acceptable credit profile, are the age of majority in your jurisdiction, and are willing to assume responsibility for the financial obligations of the borrower. That said, certain banks may have specific requirements, terms, or restrictions on who can be a guarantor for different loan products.
What Is an Example of a Guarantor?
An example of a guarantor is a family member or close friend that has agreed to assume responsibility for your financial obligations if you are no longer able or willing to pay. In other words, guarantors effectively guarantee repayment of loans or other financial products on behalf of the borrower, either directly or through their own means.
How Much Do You Need to Earn to Be a Guarantor?
To be a guarantor, you will need to demonstrate sufficient credit history, income generation, and assets in order to sufficiently handle the repayment of the loan if the borrower is no longer able to do so on their own.
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