LoansFinancial Glossary
Guarantee
Definition
A legally binding promise by a third party (the guarantor) to repay a borrower's loan if the borrower defaults. Personal guarantees are common in business loans, education loans, and loans to individuals with weak credit profiles. The guarantor's creditworthiness is assessed alongside the primary borrower's.
Why It Matters
Signing as a loan guarantor makes you equally liable for the loan. If the primary borrower defaults, the lender will come after your assets and your credit score will be damaged. Never sign as a guarantor unless you are prepared to repay the entire loan amount yourself.