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Difference Between Guarantee and Guarantor

Guarantee vs Guarantor
 

Guarantee and guarantor are words that are very common in banking parlance, especially when someone seeks loans or a bank guarantee. We also look for guarantees and warrantees on products and services that we avail in our daily lives. Many people confuse between a guarantee and a guarantor because of the financial jargon and some overlap. This article attempts to make clear the differences between a guarantee and a guarantor.

Guarantee

When you are buying a product from a shopkeeper and are a bit hesitant as you are not sure of the durability and the functioning of the product, the shopkeeper’s words are often enough to convince you as you take him at his word. However, in modern times, having a trust in someone is not enough and in place of verbal promise, a written guarantee is sought by everyone. Thus, a guarantee is a promise about the quality and durability of a product given by a manufacturer to the buyer where he undertakes to take the responsibility of changing the product if it develops a defect during the period of guarantee.

In financial parlance, a guarantee happens to be a promise where a person or a company takes up responsibility of the financial obligation of another person or company and fulfills it in the event of that person or company failing to do so. Financial institutions like banks always ask for guarantee when a person or a company approaches it for loan. Guarantee helps people in enhancing their credit standing and banks are assured of getting their money back in the event of the person failing to keep his promise of repayment. A guarantee is a legal document that binds the person giving promise into a contract. A bank can always ask for a guarantee if it is not sure about the financial stranding of a person or a company that requests loan from the bank.

Guarantor

He who makes a guarantee is called a guarantor. In case of bank loans, the person or company providing a guarantee for any other person or company are liable to fulfill the financial obligations of that person or company if he fails to keep his promises. You become a guarantor when you agree to pay someone else’s debt in case of a default or agree to perform a contract in case the person or company fails to complete its obligations. It is mostly in case of financial transactions, especially loans that banks require a close friend or a relative of the borrower to become a guarantor. If the borrower does not have sufficient assets to cover the loan being asked, banks ask the borrower to present a guarantor so as to be assured of repayment in case of a default.

Guarantee vs Guarantor

• Guarantee is the promise about the quality and durability about a product and is usually given by a manufacturer to the buyer of his product.

• In financial circles, guarantee refers to the promise made by a person or a company to fulfill the financial obligations of a borrower and the person or company giving this guarantee is called a guarantor.

• Banks ask for guarantee when the credit standing of the borrower is insufficient.

• Banks prefer close relatives and friends as guarantors.


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