What is the role of a guarantor in a loan agreement?

In a loan agreement, the role of a guarantor is to provide assurance to the lender that the debt will be repaid, but only if the principal debtor fails to meet their obligations. This distinction is crucial. A guarantor typically acts as a secondary source of repayment. Their responsibility kicks in only after the principal debtor has defaulted on the loan, meaning that the guarantor does not bear responsibility for the debt from the outset, but rather steps in to cover the debt if necessary.

This is different from being primarily liable, where the person is directly responsible for fulfilling the debt from the beginning. Additionally, a guarantor does not have a primary interest in the debt, as the financial benefits of the loan do not directly accrue to them but rather to the principal borrower. The guarantor's role is specifically to mitigate the risk for the lender and provide an additional layer of security.