A guarantor is a person or company who agrees to repay a loan or debt if the borrower fails to pay. They agree to guarantee the loan with the creditor, meaning they take on the responsibility in case of default by the borrower. Endorsing can be a mutually beneficial arrangement for the parties involved, as it allows the borrower to obtain lower interest rates and provides the endorser with asset protection and financial reputation safeguarding. Sometimes, lenders require additional documentation about the endorser before approving the loan, including a copy of their personal and/or business balance sheet, financial statements, and information about their financial history.
Engaging in such a process carries significant risks for the guarantor. In the event of default, the guarantor may be called upon to repay the entire amount without delay. Additionally, guaranteeing a loan reduces the guarantor’s borrowing capacity, as the guaranteed loan is considered their own for the purposes of calculating their debt-to-income ratio.