What is a guarantor?
If you are taking a loan, then you might come across the term called Guarantor. But what or who this guarantor person is? The simple answer is – a person who agrees to pay your debt in your stead. Now, this is not as simple as it sounds from this explanation.
For example, if you have taken a loan, you can choose a guarantor to pay your loan if you are unable to. The Guarantor has to pledge their own assets to be willing to pay the debt to incase the borrower is unable to. This article will help you understand Guarantor’s meaning and who can be one. If you need more need information, keep reading.
What Is A Guarantor?
A guarantor is a financial manager who has to pay the borrower’s debts if the borrower cannot. They pledge their assets to prove they can pay the debt if the borrower fails to pay the debt. Some rare occasions upon which individuals can pledge their assets to pay the debt. Another term called “surety” is often interchanged with the term guarantor.
|Roles Of A Guarantor|
1. The key function of a guarantor is to guarantee to pay the debt when the borrower defaults on the obligation of the loans.
2. The borrowers have to pledge their assets as collateral.
3. A guarantor is often a verifier of a person’s identity when they are taking a loan, for a job, or when trying to secure a passport.
4. The co-signer has a claim to the asset that the borrower purchases. But the guarantor has no such right.5. When the borrower defaults on the loan, the guarantor becomes liable to pay the outstanding debt. Unless they do so, legal actions can be brought against them.
6. A guarantor has to be above the age of 18.
Different Types Of Guarantors
Now that you know the answer to “what is a guarantor”, let me discuss the different types of guarantors.
You will need a guarantor on different grounds. People with poor credit histories need assistance from guarantors. The guarantors also don’t have to be liable monetarily in many of the cases. Here are some types of guarantors that you need to know about.
1. Guarantors For Certification
Guarantors don’t always have to be involved with monetary affairs. They can also exist to ensure the legitimacy of a person’s identity. They can help someone get a job or secure their passport. A guarantor can personally identify a person and offer them certification to help them gain a job or secure a passport.
2. Limited And Unlimited Guarantor
A guarantor can be both a limited and an unlimited guarantor. Their participation and indebtedness differ accordingly. A limited guarantor can guarantee the loans of a borrower for a limited period of time.
Also, they can choose to be liable for a certain percentage of the debt. Once the limited time period is over, the guarantor will no longer remain liable for the case. But the unlimited guarantor is liable for the whole percentage of the loan during the entire period of the loan’s span.
3. Cosigners & Guarantors
When the borrower has an insufficient income according to what is mentioned in the lender’s requirements, a co-signer is required. The co-signers are different from the guarantors. The guarantor will only help you if your qualifying income is sufficient. Otherwise, a lender can take the help of a co-signer.
But there is a difference. Aside from taking the burden of the borrower’s loans, the co-signers also share the ownership of the asset. If the guarantor ends up paying the debt of the borrower, they have to claim the asset. But the co-signers will gain according to their shared ownership.
Advantages And Disadvantages Of A Guarantor
Among the different types, there are also medical guarantors. But what is a medical guarantor? Patients who are responsible for paying medical bills are the medical guarantors. But if they are minors or incapacitated adults, the responsibility falls to the parents or the legal guardians of the patients.
However, there are both advantages and disadvantages to choosing a guarantor.
- They make borrowing or a rental much easier for borrowers.
- Guarantors can help borrowers gain a high amount of loans.
- Borrowers can improve their credit history with the help of a guarantor.
- A guarantor is often liable for the outstanding obligation.
- Sometimes the credit score of the guarantor gets a negative impact.
- A guarantor cannot obtain another loan since the separate use is limited.
Frequently Asked Questions(FAQs):
I think you understand what a guarantor is after reading this article. However, here are some popular questions related to guarantors. As a borrower, you will find them helpful.
Ans – Customarily, the guarantor is the person who takes the patience for treatment. Usually, they are responsible for the payment of the services offered to the patient in case the patient is unable to pay it.
Ans – A guarantor of a lease is usually the parent or family member of the borrower. They are also called co-signers. If the borrower fails to pay the debt, the guarantors remain liable to pay them back. They are responsible for all the terms of the lease taken by the borrowers.
Ans – To be a guarantor, a person needs to be verified and fulfill different requirements. Here are some of the requirements that they need to fulfill –
• You will need a high credit score.
• An income that is higher by multiple times compared to the monthly or annual payments.
Ans – When a guarantor does not pay the debts of the borrower, then both the borrower and the guarantor will be under obligation. The lender will take collection proceedings against both the guarantor and the borrower. The credit profile of both of them will get a negative impact as a reason.
The article answers your query about “what is a guarantor”. If you are taking a loan or renting a property, getting a guarantor will help you with backup if you fail to pay the debt. However, being a guarantor is not of many benefits. The advantage is mainly on the part of a borrower.
I think this article was able to solve your problems. If you have any queries, you can ask questions in the comment.