Guarantor

Written by True Tamplin, BSc, CEPF® | Reviewed by Editorial Team

Updated on January 04, 2023

Guarantor Definition

A guarantor is an individual who promises to pay the debts of another party if they default on their loan.

The guarantor makes a "guarantee" of payment by pledging their own assets as collateral.

Being a guarantor is a different role than being a co-signer because guarantors have no claim to any assets purchased by the borrower.

Purpose of a Guarantor

The purpose of a guarantor is to allow first-time renters or borrowers with poor or limited credit history an opportunity to access loans or other financial agreements.

Guarantor Requirements

The guarantor will usually:

  • be over the age of 18
  • reside in the country in which the transaction is taking place
  • and have an exemplary credit history.

They must also have sufficient income to cover the debt they are guaranteeing.

Guarantors may be limited or unlimited depending on payment schedules and the level of financial involvement they have.

Guarantor Example

A limited guarantor may be asked only to guarantee a loan up to a certain amount or for a certain period of time, after which the borrower assumes the full responsibility of payment.

Whereas, an unlimited guarantor is held liable for all payments at all stages during the loan. Guarantors may also be required for a financial agreement even if the borrower has a good credit history.

For example, many landlords require a guarantor for first-time renters, such as college students, regardless of their income or credit quality.

 

Guarantor FAQs

What is a Guarantor?

A guarantor is an individual who promises to pay the debts of another party if they default on their loan.

What is the purpose of a Guarantor?

The purpose of a guarantor is to allow first-time renters or borrowers with poor or limited credit history an opportunity to access loans or other financial agreements.

How is a Guarantor different than a co-signer?

Being a guarantor is a different role than being a co-signer because guarantors have no claim to any assets purchased by the borrower.

What does a Guarantor do?

The guarantor makes a “guarantee” of payment by pledging their own assets as collateral.

What are the requirements to be a Guarantor?

A guarantor is usually over the age of 18, resides in the country in which the transaction is taking place, and has an exemplary credit history.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.

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