Guarantor

A guarantor is a person or organization that agrees to be responsible for the debt, or obligations, of another party if that party fails to meet them. Unlike a co-signer who shares liability from the outset, a guarantor's liability is typically secondary and triggered by default. Guarantees are commonly used in loans, leases, and other credit arrangements to provide the lender with additional assurance. The guarantor is bound by the terms of the guarantee and may be required to pay or perform if the debtor defaults, after the creditor has pursued the primary debtor.

Types and scope: Guaranties can be personal, where an individual guarantees debt, or corporate, where a company acts as guarantor. They can be limited to a specific amount or time, or be unlimited. Some arrangements are conditional, some unconditional. Some guarantees are on-demand or continuing guarantees, which may affect the timing and extent of the guarantor's exposure.

Rights and risks: Upon default, the creditor may seek payment from the guarantor and, once paid, the guarantor can seek reimbursement from the debtor (subrogation). Guarantors may have rights to information about the debt and to challenge improper demands. The guarantor's liability can affect personal credit and assets, and releasing a guarantor typically requires repayment of the debt or termination of the guarantee. Guarantors should obtain independent legal advice before signing.