Co-sign in the context of "Unsecured guarantor loan"

In personal finance, a guarantor loan is a type of unsecured loan that requires a guarantor to co-sign the credit agreement. A guarantor is a person who agrees to repay the borrower’s debt should the borrower default on agreed repayments. The guarantor is often a family member or trusted friend who has a better credit history than the person taking out the loan and the arrangement is, therefore, viewed as less risky by the lender. A guarantor loan can, consequently, enable someone to borrow either more money, or the same amount at a lower rate of interest, than they would otherwise be able to secure through a more traditional type of loan.

Guarantors are often parents who want to help out their young adult children – it could be help raising the deposit for their first home, or it could be to buy a new car or complete a training course that will help them on the next step of their career. There are many reasons why young people may need such help and the fact they cannot obtain a loan themselves does not mean that they are not financially responsible or able to pay back the loan. Although these loans can be used to help provide financially responsible individuals with lending they could not otherwise access, it is important to recognize that they do carry significant risks for the guarantor, who is liable for the full debt amount should the borrower be unable to make repayment. A report suggests that these loans could be as damaging as payday loans, with 43% of guarantors in the study unclear about their financial liability.