Guarantor

Guarantor. If you borrow money and suddenly find you can't pay the lender may find they have a bad debt on their hands. Therefore, if a lender thinks you might not be able to pay back a loan being applied for, they can ask for a guarantor - a third party who will pay your debts if you can't (or won't) and who stands liable to cover any shortfall or default on the borrower's debt.

In the early 1990s, a number of mortgage lenders offered escape routes to 'young' people in negative equity provided their parents acted as guarantors of the excess debt. The assumption was that the parents would either own their own homes outright or have significant equity in the property to be able to provide a guarantee for their offspring to move up the property ladder from starter homes their own, younger families, might have outgrown.

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Last Updated: August 2007 © Moneyextra.com

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