Guarantors shoulder the responsibilities for liability on behalf of another person (the principal debtor) or a third party. Ideally, the guarantor acts are a surety, a secondary liability for the principally liable person.
A Guarantee Agreement
A guarantee agreement is done in writing, and it stipulates that the guarantor accepts the responsibilities of liability on behalf of the principle in honoring the obligations to a third party. Through this agreement, the guarantor is held personally liable if and when the principal debtor defaults on his or her responsibilities as stipulated in the contract.Discharge
Any disparities in the contract between the principal and a third party can absolve the guarantor of the responsibilities, and he or she is subsequently discharged from any and all contractual obligations. But this is not applicable to individuals who have primary liability.
In short, the guarantor's liability to the contract is based on that of the principal debtor. Therefore, if the principal is discharged, also is the guarantor.Performance Guarantee
It is a contractual agreement usually granted by a bank stating that it will pay or repay the third party the sum of money a principal debtor defaulted paying. This only happens if you apply with a guarantor
for a loan.
At times with the performance guarantee, the liability of a bank can be due to demands of the third party even though the principal debtor has not failed to honor his or her obligations as per the contract with the third party.Guarantors In Lease Agreements
In a tenancy agreement, a guarantor is required during the following:
• State benefit tenants (those enjoying housing benefits)
• Tenants with no satisfactory references and poor credit.
• Lack of proof of being able to pay monthly rent installments
• Shared leasing such as in the case of students
As for the guarantor, he or she is expected to satisfy the following:
• Proof of UK residency
• Owns a home
• Good credit rating
• Proof of good credit score
• Can pay rent on time as stipulated in the letting agreement
In the lease agreement, the guarantor's role is to compensate the landlord for possible losses arising from the breach of contract by the tenant.
Guarantors In Mortgages
A guarantor can be a valid option in the mortgage application process in the event where an applicant cannot secure a mortgage independently.
An applicant may be unable to obtain a mortgage individually because of various reasons such as:
• No credit rating or poor credit score
• Less than desirable job history
• Lack of sufficient fund to settle the down payment
The increased house prices, inability to secure funding and insufficient income are some of the top reasons why guarantors have become a popular thing when applying for mortgages, especially among students and most first time homebuyers. The guarantor will step in and can sufficiently prove that he or she can shoulder the liability of the principal applicant.
Rights And Liabilities Of A Guarantor
The guarantor's rights in a mortgage agreement or any other contract are usually limited unless stipulated otherwise in the contract. The guarantor will have no rights or interests in the property or the subject matter as under the agreement with he or she being held liable for any mortgage payment defaults.
Given such responsibilities, a guarantor should take precautionary measures to know the extent of the liability, as well as the principal's circumstances that warrant such aid before accepting to shoulder the responsibilities of being a guarantor.
It also is wise to seek legal advice especially since the third party can, as under the contract, enforce his or her rights to be compensated due to the principal's default. If things end up in legal proceedings brought against the guarantor, he or she may be held liable and may have to pay the third party's legal costs if the guarantor losses the case.