A guarantor is someone who agrees to sign an agreement and basically guarantees that if for some reason the borrower cannot pay, the guarantor will make the payments on their behalf.
Rights of guarantor:
1. Guarantees often state that the obligations of the guarantor are equivalent to the borrower’s obligations.
2. An “all obligation’s guarantee”, (standard with most banks and finance companies) means that the guarantor is liable for all the principal debtor’s obligations to the creditor and the guarantee is not limited to the particular transaction which gave rise to the guarantee.
3. Guarantees should not be confused with indemnities. Indemnities have become increasingly common in complex financial transactions, especially for limited recourse transactions.
4. Some institutions attempt to incorporate both an indemnity and a guarantee in a single document.
5. A guarantor’s liability under a guarantee can never be greater than that of a principal debtor. The liability of an indemnifies to the creditor may be greater than that of the principal debtor.
Roles of guarantor:
1. Through a legal document known as a guarantee or guarantee, guarantors promise to pay for someone else’s debt if the debtor defaults on a loan obligation.
2. Guarantors pledge their own assets as collateral against the loans.
3. A guarantor personally guarantees that payments will be made if the original applicant defaults. The guarantor has no claim to the property that secures the loan, such as real estate.
4. A mortgage guarantor, for example, will have to carry the entire debt or a specified amount of the debt, depending on the type of mortgage, if the homeowner defaults.