Guarantor

Guarantor

A party who will guarantee repayment or performance of a covenant.

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Guarantor

A third party who promises to provide payment on a bond, loan, or other liability in the event of default. While many guarantees apply to debt instruments, they may also be used for day-to-day expenses. For example, a parent may be a guarantor for an adult child and promise to pay rent to a rental agency if the adult child does not do it. Banks often serve as guarantors on behalf of certain clients, but, just as often, private parties serve as guarantors and promise payment on private loans. Guarantors reduce the risk to loans and liabilities, and usually improve the credit agency ratings of bonds.

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Guarantor. If lenders are concerned about your income, your credit history, or other risk factors when you apply for a loan, they may require a guarantor, or cosigner.

The guarantor signs the loan with you and agrees to pay your debt if you default. For example, lenders may fear that your income may not be high enough to meet your payments if you encounter any unexpected financial setbacks.

Laws governing who may serve as a guarantor vary from state to state. Some states require that your guarantor be a resident of the state where you're obtaining the loan, while others will accept guarantors from out of state as well.