A guarantor is someone who agrees to cover the obligations of a person who makes a commitment if they cannot for some reason. This might be to provide security for a borrower or real estate tenant if they default on their agreed payments.

Having a guarantor can sometimes be necessary to secure a loan or sign a lease agreement if the main borrower doesn’t satisfy the correct financial criteria. They can be named on legal documents such as:

Knowing when to add a guarantor can be an essential consideration before securing financing or getting a rental contract. Read on below to learn more about what these parties do and how and why they might be needed.

Who Can Be a Guarantor?

Anyone over the age of 18 that lives in the same country or state as the payment being made may voluntarily be a guarantor. However, in most cases people will only be eligible to take up this role if they have a sufficient income or credit history to cover the payments that need to be made.

Advantages and Disadvantages of Guarantors

Guarantors can be advantageous in a lot of situations. However, there are also plenty of scenarios where they might not be the right choice. Find out the key advantages and disadvantages of these benefactors below.

Advantages Disadvantages
A borrower has greater access to loans and real estate The guarantor takes responsibility if the named party doesn’t fulfill their obligations
A borrower can improve their credit or rental history It could prevent the borrower or guarantor from acquiring separate loans
More money can be borrowed than would otherwise be allowed It could negatively affect the guarantor’s credit score

There are a few key reasons why a guarantor might be called upon to provide extra guarantees for a payment. These are explained in detail in the next few sections below.

Guarantors That Certify an Agreement

This is the most common type of guarantor. These parties cover loans, help convince landlords to take on tenants, get hired in jobs or help with the immigration process amongst other duties.

Not all these guarantors are liable for payment if the individual they vouched for doesn’t meet their duties. However, the person chosen to be guarantor is seen to command a high enough level of trust to help the agreement work.

Limited and Unlimited Guarantors

When a debt needs to be paid, guarantors can either be limited or unlimited. This defines how much of the money needs to be covered by them individually.

Limited guarantors will only pay an assigned portion of any debts if the borrower defaults, known as the penal sum. However, unlimited guarantors must repay the entire loan (often with interest added) with their own assets if the original agreement holder can’t make payments.

Guarantor vs Cosigner: What’s the Difference?

Cosigners have some features in common with guarantors as they are jointly liable for a debt. However, there are also some significant differences.

When someone co-signs an agreement whether it is a mortgage or rental contract they appear on the title and become the co-owners or co-guardians of an asset and share all the responsibilities of it. However, a guarantor only steps in if the person on the title defaults from their stated obligations, beyond this they have no responsibilities for anything else.