A guarantor signs a guarantee: a legal promise that if the borrower stops paying, the guarantor pays. It is not a character reference and not a formality. If the loan defaults, the lender can pursue the guarantor for the debt, and the default can land on the guarantor’s credit file.
Lenders ask for guarantors when a borrower’s file or income does not quite carry the loan alone; a guarantor with a strong file can turn a decline into an approval or improve the rate. That is a real benefit with a real cost: the guarantor carries the downside of a loan they get no money from.
NZ law gives guarantors protections, including disclosure of the loan’s terms, and responsible lenders will insist the guarantor understands what they are signing, ideally with independent advice. Treat any pressure to “just sign quickly” as a warning.
If you are asked to be one: read the loan’s full terms, know the total amount payable you are guaranteeing, and be honest about whether you could absorb it. If you are a borrower considering offering one up: remember you are spending someone else’s balance sheet, usually a parent’s, and the relationship is the real collateral.