What Is a Guarantor Agreement?

A guarantor agreement is a legal document that refers to an arrangement in which a third party, known as a guarantor, agrees to provide payment assurance in the event that the party participating in the transaction fails to live up to their half of the bargain. This document is frequently used in real estate and banking transactions. The guarantee bears all of the risks in this agreement because if the borrower fails to make the agreed-upon installments, the guarantor is responsible for repaying the loan. This document also adds extra safety to a loan which makes it more appealing to potential lenders because having the presence of a guarantee in a loan reduces the likelihood of a lender not being repaid.

Elements of a Guarantor Agreement

Here are the common elements that are usually included when making a guarantor agreement:

Definition of Terms. This part of the guarantor agreement explains in simple language all of the complex terms that are present in the agreement document. This is done in order to avoid any form of confusion.Guaranty. This part of the guarantor agreement refers to a promise or an undertaking to answer a debt payment or a performance of duty in case the first (or main) liable person fails to do so.Guaranty Absolute. This element of the guarantor agreement states that each guarantor guarantees that the obligations will be paid or performed strictly in accordance with the terms of the documents regardless of any law, regulation, or order that is in effect in a particular jurisdiction which may affect any terms or rights of the parties involved in the agreement.Continuation and Reinstatement. In this part of the agreement, the guarantor agrees that its guarantee shall continue to be effective or be reinstated if, at any time, the payment or any part of any obligation is to be rescinded by any authorizing party.Waivers. A waiver refers to a provision wherein either of the parties involved in this agreement agrees to voluntarily forfeit a claim without the other party being held liable. The key point here is that the action can be performed voluntarily.Subrogation. This element refers to any assumption by a third party (in this case, the guarantor) of another party’s legal right to collect any debt or damages.Subordination. This clause of the guarantor agreement states that current claims on any debts will take priority over any other claims formed by any other types of agreements that the main party may enter in the future.Representations and Warranties. This section of the guarantor agreement relates to any statements or guarantees supplied by the parties to the agreement. While most purchase agreements include representations and warranties from both the seller and the buyer, the seller’s representations and warranties are usually the more extensive and significant.Right of Set-Off. This section of the guarantor agreement refers to a legal privilege that allows a debtor to reduce the amount owing to a creditor by offsetting any amounts owed by the creditor to the debtor. When a borrower declares bankruptcy, it is a useful legal privilege since the creditor will likely recover more asset value by seizing assets than by gaining a lesser amount through the bankruptcy process. As a result, set-off clauses are most commonly seen in lending agreements if the lender fears the borrower will be unable to continue as a going concern.Indemnification. This element of the guarantor agreement refers to any contract clauses that aim to shield one party from obligation if a third-party or third entity is affected in any way. It is a contractual provision that requires one party to recompense another for losses or damages that have occurred or may occur in the future.Waiver of Jury Trial. This clause of the guarantor agreement states that each guarantor of the agreement has knowingly, voluntarily, intentionally, and irrevocably relinquished their right to a jury trial if there is a dispute arising out of or pertaining to the agreement or the transaction.

What Are the Different Types of Guarantors?

Listed below are the different types of guarantors, with each type varying according to the situations that a guarantor may be used.

What Are the Different Types of Guarantees?

Here are some of the different forms or types of guarantees that exist:

What are the Risks That Come With Being a Guarantor?

There is a risk that the guarantor repays the entire debt. Being a guarantor comes with a risk that if the borrower fails to repay the loan installments, the guarantor will be required to repay the entire loan amount plus the interest. If the guarantor is unable to make the payments, the lender may repossess his/her home or automobile, if it was used as collateral for the loan.It can prevent acquiring a loan. If the guarantor applies for another loan in the future, the guarantor must inform the lender if he or she has been named as a guarantor on any other loans. Even if the guarantor can guarantee that the current loan that they’re part of is being repaid, they may opt not to lend to you.A bad credit report is a possibility. If either the guarantor or the borrower fails to repay the guaranteed loan, the default appears on the guarantor’s credit report. This makes it more difficult for him or her to borrow in the future.It can damage relationships. If someone is a guarantor for a friend or family member who is unable to repay the debt, it may have an impact on their relationship, such as straining it. If a person does not feel comfortable guaranteeing a loan, there may be other options for assistance. Monetary donations to specific deposits are one example.

Steps in Writing a Guarantor Agreement

Before someone can be a guarantor, it is required that they agree to the terms of a guarantor agreement. Here are the steps to follow when writing one:

  • 1. Gather All the Necessary Materials or Documents

    Before you start writing the guarantor agreement, make sure that you have all the necessary materials or documents that you need. For instance, documents such as bank statements or tax returns may be required depending on the type of guarantor agreement. It is important that you have the materials, or at least the vital information on those materials, present with you as you start writing the agreement.

  • 2. Start Writing Your Personal Information

    Start with your personal details when creating the document. This will include information such as your name, address, social security number, and phone number. You must supply this information so that the company with whom you are signing the agreement can run a credit check.

  • 3. Include the Secondary Elements of the Guarantor Agreement

    In this step, begin including the secondary elements of the agreement. These include the introduction of the agreement, any other basic information, the definition of terms, and so on. These are called secondary elements because while they are important to the guarantor agreement, they do not have the same bearing/importance compared to the main elements that follow them.

  • 4. Start Writing the Main Elements

    In this step, you can now begin writing the main elements of the guarantor agreement. These elements include the guaranty, the guaranty absolute, the continuation and reinstatement clause, the waivers, the subrogation clause, the subordination clause, the representations and warranties clause, the right of set-off clause, the indemnification clause, and lastly, the waiver to jury trial clause. The contents of a guarantor form may also be included here, such as the borrower’s income, employment status, and banking information.

  • 5. Finalize the agreement

    Once all the parts of the guarantor agreement have been written, it won’t hurt to give it a second look. Verify if there are any other missing elements that could play a big part, or you can also check if there are parts that can be deemed unnecessary that you may have missed. Also, check for any inconsistencies that can be present in the agreement and also check for any typographical or grammatical errors, because they may lead to unnecessary trouble in the future should any party involved take too many liberties in interpreting a certain clause just because a mistake was left uncorrected.

  • 6. Sign the agreement

    Once the guarantor agreement has been finalized, it is now time for all the parties involved to come into agreement with the terms stated. If everything goes well, they immediately sign it, and the agreement will take effect either immediately or on the date stated on the document. If they don’t agree on certain things but still need the agreement to push through, a compromise can be reached so that the chances of backing out are lessened. Once the document is signed, getting it notarized can be a big advantage in case there are any legal disputes.


Can a guarantor agreement be challenged?

Yes, a guarantor agreement can be challenged in court. A condition that can trigger a court challenge includes being made a guarantor through forced persuasion, such as being put under pressure, experiencing blackmails, or being made a guarantor out of fear. Other situations that can call a court challenge include having a disability or mental illness at the time of signing the agreement, having little to no legal advice prior to signing such agreement, and having a hunch that you were tricked into signing such document.

Is a guarantor the same as a co-signer?

These terms may be used and thrown around interchangeably, especially by a layman. It is important to understand that these terms are completely different. A guarantor is only responsible for paying if the main borrower is unable to pay the loan amount and will only do so once he/she is notified by the lender of the loan. A co-maker shares the same responsibility as the borrower right from the start of the agreement. He/she co-owns the asset and is responsible for completing the payments right from the start of the agreement.

When will the liability of the guarantor end?

The liability of a guarantor is limited to what is stated in the guarantee agreement or what is agreed upon verbally. Many guarantor agreements are vague or open-ended, referring to the guarantor’s liability as ‘under this tenancy/agreement.’ This implies that obligation may extend beyond the defined period, to any extension, and to any other certain alterations. In such cases, it can be ended by a valid notice or by a court challenge.

How can you be a guarantor?

There are several agreements in place, and each lender has distinct requirements for someone to act as a guarantor. A guarantor must have a high credit score and no negative scores present on their credit report. They must also have an income that is a multiple of the monthly or annual payouts or compensations.

Sure, securing your dream place to live in the city through a loan or through other financing methods can prove to be a big sigh of relief, but, since this is such a massive investment, you always need to make sure that you have a reliable guarantor in the agreement in case something happens out of your control which will render you unable to continue paying the loan amount for a certain period or permanently. In this article, examples of a guarantor agreement are readily available so that you can have something to look at when drafting your own.