A guarantee agreement is a formal document in which one person takes the responsibility of making payments on behalf of another in case the defaulter is unable to make the payments. The person giving the guarantee is called the ‘surety’ or guarantor and the person to whom the guarantee is given is called the creditor and the person on whose behalf the guarantee is given in case he makes a default in payment is called the ‘debtor’.
This agreement is often created as part of trade or loan agreements, where if the debtor fails to pay back the money he has taken from the creditor, the guarantor can step in and pay the money, whereby the creditor doesn’t lose any money and he does not take drastic actions like suing the debtor. A guarantee agreement is like a safety precaution which a creditor follows in case there are payment defaults on the part of the debtor involving big amounts.
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