What is the term for a person who guarantees the loan for the original borrower and is responsible for repaying the loan if the borrower defaults?

The term that most accurately describes a person who guarantees a loan for the original borrower and takes on the responsibility for repaying it if the borrower defaults is "guarantor." This individual lends their creditworthiness to help the primary borrower secure the loan, often because the primary borrower may not meet the necessary credit requirements on their own. The guarantor agrees to pay back the loan should the borrower fail to do so, thereby providing assurance to the lender.

While "co-signer" is a term often used interchangeably with "guarantor," there are subtle differences. A co-signer is usually equally responsible for the loan from the outset and is often involved in the loan process. In contrast, a guarantor typically comes into play if the borrower defaults. Understanding these distinctions is crucial, as it clarifies responsibilities regarding repayment and the circumstances under which they arise. Both terms indicate an additional layer of accountability besides the primary borrower, demonstrating the importance of trust and financial support in loan agreements.