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{{Short description|Guarantor promise to assume the debt obligation of a borrower if the latter defaults on a loan}}
{{Redirect|Co-Sign|the song|Co-Sign (song)}}
A '''loan guarantee''', in finance, is a promise by one party (the [[guarantor]]) to assume the [[debt]] obligation of a borrower if that borrower [[default (finance)|defaults]]. A guarantee can be limited or unlimited, making the guarantor liable for only a portion or all of the debt.
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=== Guarantor mortgages ===
Popular with young borrowers who do not have a large deposit saved and need to borrow up to 100% of the property value to purchase a property.<ref>{{Cite news |last=Jones |first=Rupert |date=2022-07-23 |title=Help to buy scheme: the clock is ticking if you want to apply |language=en-GB |work= |url=https://www.magicalcredit.ca/what-banks-look-when-reviewing-loan-application/ |access-date=2023-04-29 |issn=}}</ref>{{citation needed|date=March 2017}} Generally, their parents will provide a guarantee to the lender to cover any shortfall in the event of default.{{citation needed|date=March 2017}}
There are three main types
# Guarantor Mortgage – generally, a parent or close family member will guarantee the mortgage debt and will cover the repayment obligations should the borrower default.
# Family offset mortgage – typically, a parent or grandparent will put their savings into an account linked to the borrower’s mortgage. They do not get any interest on these savings whilst offsetting the mortgage, but will be able to get their money back in full once the mortgage has been paid down to between 70% and 80% of the property’s market value.
# Family deposit mortgage – a family member will place a deposit in a dedicated savings account and is held as security against the properties mortgage. Interest is paid on this deposit, but if the borrower defaults on their repayments, then money will be taken from this savings account.
=== Unsecured guarantor loan ===
An [[unsecured debt|unsecured personal loan]] that is popular with borrowers who have a poor [[credit rating]]. They also require the [[guarantor]] to meet the borrower’s obligations if they default on their loan repayments.<ref>[https://darkhorsefinancial.com.au/secured-unsecured-business-loans/ Unsecured Business Loans]</ref>
==Government loan guarantees==
The term can be used to refer to a government to assume a private [[debt]] obligation if the borrower [[default (finance)|defaults]]. Most [[loan]] [[guarantee]] programs are established to correct perceived [[market failure]]s by which small borrowers, regardless of [[creditworthiness]], lack access to the credit resources available to large borrowers.<ref>Riding, Alan L. "On the Care and Nurture of Loan Guarantee Programs." ''Financing Growth in Canada''. Paul J. N. Halpern, ed. University of Calgary Press, 1997.</ref>
Loan guarantees can also be extended to large borrowers for
=== Government programs and agencies ===
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*[[USDOE]]
*[[VA loan]]
*[https://web.archive.org/web/20100527144253/http://www.usaid.gov/our_work/economic_growth_and_trade/development_credit/index.html USAID Development Credit Authority]
* [http://www.fsa.usda.gov/farmloans U.S. Department of Agriculture (USDA) Farm Service Agency (FSA) loans]
* [https://www.rd.usda.gov/ U.S. Department of Agriculture (USDA) Rural Development (RD) loans]
==== Kingdom of Saudi Arabia ====
* [https://www.kafalah.gov.sa/en/Pages/default.aspx The Small and Medium Enterprises Loan Guarantee Program “Kafalah" ]
==See also==
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