What is a guarantor?

A guarantor is a term used to describe the person or persons who are liable for the loan. In other words, someone who guarantees that the loan will be paid
if the borrower fails to make payments.

October 20, 2023

Christer Aarvåg

What is the difference between a guarantor and a co-borrower?

A (real) guarantor provides a guarantee for part of the loan.
A co-borrower is liable for the entire loan on an equal footing with the primary borrower.

What is a surety?

When you provide collateral in your own home to secure someone else’s loan or debt, you are called a real estate guarantor.

Who can serve as a guarantor?

In principle, there are no formal rules governing who can serve as a guarantor. However, it is common for close family members—especially parents—to act as guarantors for their children’s loans and debts.

The guarantor’s own debt should not exceed approximately five times their gross annual income, including the debt for which they are acting as guarantor.

It is important to understand that acting as a guarantor for someone is a legally binding agreement. The guarantor becomes personally liable to repay part of the loan if the borrower is unable to do so.

That is why it is important for the guarantor to be aware of what they are committing to:

That they have the financial ability to repay the loan should it become necessary. The guarantor must also be confident that the borrower will be able to repay the loan.

A guarantee agreement is a major commitment and can be a source of potential conflicts and disagreements between the guarantor and the borrower. Carefully consider whether you want to enter into a guarantee agreement. Also, make sure you have a clear and unambiguous agreement in place before signing anything.

Different types of security:

REAL GUARANTEE

SIMPLE GUARANTEE

SELF-LIABILITY GUARANTEE

A real estate guarantee means that the bank receives additional security in the form of the guarantor’s home. Many older generations have paid off a significant portion of their home and can therefore offer it as collateral. Collateral is a form of security that provides the bank with a guarantee that the loan will be repaid.

As a mortgage guarantor, you are therefore responsible for the portion of the loan for which you have provided a guarantee. If the primary borrower fails to repay the loan, the bank may require the mortgage guarantor to repay the portion of the loan for which he or she has provided a guarantee.

If the borrower is unable to repay the loan, this can have serious consequences for the co-signer. The guarantor may lose their home if the bank decides to sell it to cover the portion of the loan for which they have guaranteed. Therefore, one should always be cautious and thorough when considering acting as a guarantor.

Typically, the real estate guarantor guarantees the portion of the loan that exceeds 80–90% of the purchase price.

Even if you act as a guarantor, the borrower bears the primary responsibility for repaying the loan. It is important to make sure that the person taking out the loan has sufficient financial resources to repay it, even if the interest rate rises.

In the case of a simple guarantee, the guarantor is liable only for the borrower’s inability to pay. The bank cannot demand payment from the guarantor until legal action has been taken against the borrower to establish this.

A simple guarantee is a type of guarantee that banks do not use very often these days. This is because banks want to have sufficient security to ensure repayment of their loans. A simple guarantee does not provide sufficient security. If the borrower is unable to repay the loan, the bank must first take legal action before the guarantor can be held liable for the debt. This can be a long and costly process for the bank.

A simple guarantee may nevertheless be appropriate in certain cases, such as when one private individual lends money to another private individual. In such cases, a simple guarantee can be a way to provide additional security for the lender.

A type of guarantee in which the guarantor waives the right to contest claims made by the creditor on behalf of the principal debtor. This means that the guarantor authorizes the creditor to demand repayment from the guarantor without having to go through legal proceedings or seek permission from the guarantor.

A joint and several guarantee is often used in business agreements and loan agreements where the creditor seeks greater security for the repayment of the loan. This is a risky arrangement for the guarantor. It allows the creditor to demand repayment from the guarantor without having to prove that the primary debtor is unable to repay the loan. Carefully assess the risks and consequences before signing such an agreement. It is most commonly used in a business context where, for example, owners or shareholders act as guarantors.

Collateral Guarantor for Loans with Payment Delays

If you have debt with payment defaults, you can apply for a debt relief loan.

This is a special loan that can give you a fresh start by consolidating all your debt into a single loan. You can get this loan even if you have payment defaults or debt collection cases, but you must be able to provide real estate as collateral. This can be your own property plus the co-signer’s property, or just the co-signer’s property.

As a real estate guarantor, the guarantor provides a mortgage on their own property as primary or additional collateral for the loan. This can be a good way to get the loan you need, but keep in mind that acting as a guarantor is a major responsibility. The guarantor may be held liable for large sums if the borrower fails to repay the loan.

Read about the rights and obligations of a guarantor at Finansportalen

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