Perhaps you’re applying for your first apartment lease. Or, maybe you’re ready to obtain a mortgage, but you don’t have extensive credit history. Under these circumstances, having a guarantor can increase your odds of approval. But what is a guarantor, exactly? A guarantor is someone who agrees to repay your debts if you default on your obligation for any reason. In some instances, a guarantor verifies that certain information is true, such as on an official passport application. In this article, we’ll cover what is a guarantor, who can be a guarantor, and other conditions surrounding guarantors in Canada. Keep reading to learn more!

What is a guarantor?

A guarantor is someone who vouches for another person, known as a guarantee, usually to obtain credit. By vouching for this person, a guarantor agrees to repay debt on behalf of the guarantee if they cannot pay for any reason. Having a guarantor is not mandatory when applying for debt, but it can help with the approval process, especially if the borrower has bad credit, is still building credit, has limited or irregular employment history, has low or irregular income, or otherwise unfavorable circumstances. Asking someone to be your guarantor is a large request, so be sure it’s someone you trust and is a close friend or family member. Let’s take a look at guarantors in different types of situations.

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What is a guarantor for a passport?

When applying for or renewing a passport in Canada, you require a guarantor. In this circumstance, the guarantor is not helping you apply for credit. Rather, they validate your identity to the Government of Canada before they issue a passport to the guarantee. Usually, the guarantor must have known you for at least two years and can verify the information on your passport application. 

A guarantor is often required for other government identification applications as well, such as applying for a birth certificate or SIN card. 

What is a guarantor for an apartment lease?

A guarantor for an apartment lease agrees to pay rent on behalf of the guarantee should they fail to pay for whatever reason. In this circumstance, the guarantor is normally a family member or close friend of the guarantee. Having a guarantor for an apartment lease is not necessarily required, but it can help if the guarantor has bad credit or a lack of steady income. For instance, a student who’s looking for an apartment to attend school might want a guarantor on their application due to short credit history and not having a job while they’re studying.

What is a guarantor on a mortgage loan?

On a mortgage loan, a guarantor agrees to make mortgage payments on behalf of the guarantee if they cannot make payments for any reason. It is not mandatory to have a guarantor on a mortgage, but it can help if the borrower has bad credit, is still building credit, wants a more favorable rate, or has irregular income. 

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What is a guarantor responsible for?

A guarantor agrees to pay debts on behalf of the guarantee if they default on the loan or obligation. This is under the circumstances that a loan or credit is being guaranteed. In other cases, such as with a passport application, a guarantor verifies a guarantee’s identity or that the information they’re providing is accurate and true. Here, it’s important that a guarantor remains honest and truthful because your own reputation is at stake.

Who qualifies as a guarantor?

Generally speaking, anyone can be a guarantor. However, below are characteristics of someone who would make a good guarantor:

• Good Credit. Often, people use guarantors to improve their odds of approval with a loan application when their credit is unfavorable. Or, their circumstances are unconventional, such as being self-employed. For this reason, the guarantor you choose should be in optimal financial standing and have good credit. Usually good credit is defined as a score of 650 or higher.
• Close to You. Asking someone to be your guarantor is a big request. If anything changes with your financial situation and you default on your obligation, the guarantor is required to pay your debts. Considering how big of a request this is, a guarantor is normally a close friend or family member, not just an acquaintance. 
• Trustworthy. A good guarantor is a trusty and reliable person. This is how they’ve been able to build good credit and have optimal finances. In addition, if you do default on your financing, this person should ideally be able to cover the cost on your behalf. 

Why can’t someone be a guarantor?

There is no definitive criteria for someone to be a guarantor. Each lender varies in their approval criteria, but the guarantor you choose should fit the characteristics above. Furthermore, the guarantor you choose should not have bad credit because this won’t help your application or approval. This is because the lender won’t be able to trust that your guarantor will cover the cost of the loan if you fail to pay with a bad credit history or otherwise unfavorable circumstances. Generally speaking, the guarantor you choose should have healthy finances to assist with your application. Otherwise, you should just take a stab at applying for financing without a guarantor. 

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What information is required for a guarantor?

When someone agrees to be a guarantor, the financial institution or entity will ask for some information as a part of the application and approval process. The exact information will vary depending on the lender or entity, but generally speaking, here is what’s required:

• Personal identification. First things first are to identify the guarantor. This is usually done through government issued identification, such as a driver’s license or passport. 
• Credit check. As mentioned, the most important requirement for a guarantor is usually a good credit score. For this reason, a lender will want to check the guarantor’s credit history and report as a part of the approval process. 
• Income and employment verification. Should the guarantee default, the guarantor is responsible for making payments on the loan or credit. The lender will want to verify the guarantor’s employment and income to ensure they can afford the payments should the guarantee default. 
• Signature on loan documents. When approval for the loan is granted, the guarantor may need to sign some paperwork to officially agree to cover the cost of the loan should the guarantee default.

What is a guarantor vs cosigner?

A cosigner is a term that is commonly used interchangeably with guarantor. There is a subtle difference between a guarantor and cosigner, though. A cosigner is equally responsible for every payment on a loan as the main signatory. Whereas a guarantor only becomes responsible when the guarantee defaults on the loan. Guarantors are not required to cover every single payment if the main borrower doesn’t pay. In other words, there is more flex with a guarantor compared to a cosigner.

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Can a guarantor be a family member?

Yes, a guarantor can be a family member. In fact, guarantors are often close family members due to the big responsibility that comes with being a guarantor. 

Can a guarantor be a friend?

Yes, a guarantor can be a friend. However, before you ask a friend to be a guarantor, remember what you are asking of them. It’s a big responsibility. They may be working on building up their own finances and not yet in a position where they can support others. You should only ask a close friend who you trust and know to be financially reliable. In addition, be prepared for a friend to say no to being your guarantor if they are not comfortable with the obligation. 

Guarantors in Summary

In summary, guarantors agree to make payments on your debt if you default for any reason. Although, sometimes a guarantor can serve a different purpose, such as guaranteeing that certain information is true and accurate. A guarantor should be someone with good credit and in an ideal financial situation to cover your debt if you default. Further, a guarantor should be someone you trust and is a close friend or family member. Using a guarantor can increase your odds of approval, especially if you have bad or minimal credit history, limited employment history, low or irregular income, or unfavorable circumstances in the eyes of lenders. Consider using a guarantor on your loan application to enhance odds of approval!

Read More: Pre-Approval for a Mortgage in Canada: What to Know