A guarantor, also known as a cosigner, is a person or entity who agrees to take on the responsibility of paying off a debt or fulfilling a financial obligation if the primary borrower or debtor is unable to do so. By acting as a guarantor, this individual provides an additional level of security to the lender, assuring that the debt will be repaid even if the original borrower defaults.
When someone becomes a guarantor, they essentially promise to cover the debt or financial obligation if the primary borrower fails to meet their obligations. This could apply to various types of loans, such as personal loans, mortgages, student loans, or business loans.
Lenders often require a guarantor when the primary borrower has a limited credit history, poor credit score, or insufficient income to qualify for the loan on their own. The guarantor typically needs to have a strong credit history and the financial capacity to fulfill the commitment if needed. Their agreement to take on the debt is a legally binding commitment. If the primary borrower defaults, the lender can pursue the guarantor to collect the outstanding balance.
While being a guarantor can help someone secure a loan they wouldn't otherwise qualify for, it also comes with significant risks. If the primary borrower defaults, the guarantor's credit score may get negatively affected, and they may face financial consequences and collection efforts from the lender. In some cases, a guarantor may be released from their obligations after the primary borrower demonstrates a positive payment history or meets certain criteria outlined in the loan agreement.