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Guarantors are legally bound to pay back the loan if the borrower cannot pay
Financial institutions may require guarantees to enhance the credit standing of prospective borrowers, thus enabling them to obtain financing. Many people think that a guarantor gives a reference of the good character of the borrower. They do not realize that they are legally bound to pay back the loan if the borrower cannot or will not pay.
What is a guarantee?
A guarantee is a legal contract that binds you to pay the debt of the borrower if the borrower fails to do so. The financial institution can sue you when the borrower does not pay back his/her debt.
Who can be a guarantor?
Anyone can be a guarantor as long as the person can meet the legal requirements to be a guarantor. However, since a guarantor would be liable to pay the debts of the borrower in the event the borrower defaults, you should consider becoming a guarantor only if you are sure that you can pay the debts of the borrower in the unfortunate event that he/she fails to do so.