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Collateral agreements involve a third party, or guarantor, who will make payments if the main person cannot. Student loans often have a guarantee agreement with the government. People with poor credit may use a co-signer. Warranty contracts offer satisfaction guarantees for goods or services, but can be difficult to enforce. Large companies usually honor their agreements, but it can be costly to return purchases.
A collateral agreement is usually entered into during a loan or real estate transaction. It tends to involve a third party who will step in and make the necessary payments if the main person getting a loan or renting a property cannot make the payments. The third party is called a guarantor, or sometimes a cosigner.
Often, student loans are part of a guarantee agreement. They claim that the government guarantees the repayment of a loan. If the student defaults for any reason, the bank lending the money will receive its money from the government, and the government will be responsible for trying to collect the debt from the student.
People with poor credit may be involved in a collateral arrangement for the purpose of buying a car or renting a house. They often use someone with good credit, perhaps their parents or a sibling, as a co-signer so they can enter into such an agreement. This is a bit of a double-edged sword. If the person cannot fulfill his financial obligation, the financial obligation is transferred to the guarantor. So, for example, if a person fails to pay rent, the parent or sibling must.
The term warranty contract can also be used in the context of people who are offered a satisfaction guarantee for the purchase of goods or services. Such an agreement can be easy to enforce or very difficult for the consumer. For example, most products on infomercials that offer a money-back guarantee may have a warranty agreement that is somewhat difficult to enforce. This is because production companies can be very small or because money-back guarantees have a certain time frame.
In general, most large companies that offer a money-back guarantee agreement honor their obligations. So, for example, things bought on TV channels like Home Shopping Network are quite easy to return if they are not satisfactory. However, an agreement of this type is generally not a signed agreement, as is the first type defined here. Therefore, it may be even more difficult to enforce satisfaction guarantees, and it may prove costly to return purchases that don’t deliver on their promises.
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