Loan guarantees

A loan guarantee, in finance, is a promise by one party (the guarantor) to assume the debt obligation of a borrower if that borrower defaults. A guarantee can be limited or unlimited, making the guarantor liable for only a portion or all of the debt.

There are two main types:

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. Generally, their parents will provide a guarantee to the lender to cover any shortfall in the event of default.

There are three main types

An 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.

The term can be used to refer to a government to assume a private debt obligation if the borrower defaults. Most loan guarantee programs are established to correct perceived market failures by which small borrowers, regardless of creditworthiness, lack access to the credit resources available to large borrowers.

Loan guarantees can also be extended to large borrowers for political reasons. For example, Chrysler Corporation, one of the "big three" US automobile manufacturers, obtained a loan guarantee in 1979 amid its near-collapse, and lobbying by labor interests. Somewhat differently, despite intensive lobbying by the Israel lobby, President George H. W. Bush refused $10 billion in loan guarantees to the Israeli government of Yitzhak Shamir because of his pro-settlement policy and because Palestinians and many Arab governments viewed the prior acceptance of loan guarantees as an indicator of America's lack of credibility as a mediator.

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Wikipedia