Surety vs. Guarantor: Understanding the Key Differences

A couple os meeting with a loan officer.

When a person or organization borrows money, sometimes lenders seek commitments from a third party to ensure the debt will be paid. Sureties and guarantors are two different types of third-party assurances. While these phrases are sometimes used interchangeably, subtle legal differences may exist depending upon the state.

If the Original Borrower Pays

In some states, both the surety and the original borrower are primarily responsible for repaying the loan. The guarantor, however, is only responsible for repaying the loan if the original borrower defaults. As long as the original borrower makes the scheduled payments, the guarantor bears no responsibility to pay.

If the Original Borrower Defaults

States impose different collection rules for surety vs. guarantors if the original borrower defaults. However, these rules differ by state. In Illinois, lenders can go after the guarantor immediately if the original borrowers default but must sue the primary debtor before going after a surety. In Pennsylvania, the situation is reversed. A lender can require the surety to pay up as soon as the other debtor defaults, but must first attempt to collect the debt from the primary debtor before requiring a guarantor to pay up. If you are asked to be a surety or guarantor, check the laws in your state before agreeing.