Guarantor

A guarantor provides a backstop for the lender. They do not usually make the regular payments, but if the borrower defaults, the lender can turn to the guarantor to recover the money. Guarantors are common for rental agreements, student loans, small business loans and loans to people with limited credit history.

The difference from a cosigner is mainly one of timing and role. A cosigner is typically a joint borrower, equally responsible from the start. A guarantor is usually called upon only after the borrower has failed to pay. In practice, the exact responsibilities depend on the contract and on local law, so the wording of the agreement matters.

In business, company owners are often asked to provide a personal guarantee for a company loan. This means that if the business cannot repay, the owner's personal assets may be at risk.

Becoming a guarantor is a serious commitment. A guarantor should understand the full amount they could be asked to pay, for how long the guarantee lasts and whether it can be ended.