Some businesses and individuals are unable to secure loans without a guarantor, possibly because of a lack of credit or assets or because of an existing debt load. Guarantors provide borrowers with the opportunity to secure a loan and make investments in their homes, education, businesses and/or personal lives.
If a borrower defaults on the loan, the guarantor is responsible for paying the loan in full. This payment may be due immediately. In many cases, a guarantor may not be removed from his loan obligations until the loan has been completely paid or the loan is refinanced in only the borrower's name.
A person or company should only agree to guarantee a loan if she feels she is capable of repaying the loan in full. Guarantors must also go through a loan application process, so borrowers should choose guarantors who are financially stable to ensure the loan application is approved.