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An accommodation party is a person or entity who signs a promissory note for the purpose of being a surety for another party.
In essence, he don’t receive any value from such a lending arrangement other then being a helpful and generous friend or family member.
The more common term that we are used to is guarantor.
But as it seems that corporations like to impress us with words that we don’t see more than a handful of time on a lifetime, you might run into this term.
There is still a high number of people who think that accommodation parties are not responsible for loans like mortgages should the main borrower (accommodated party) default.
But that is not true.
Guarantors are liable for a loan should the main borrower fail to repay it.
Delinquency on the part of the main borrower will also affect the credit record of the accommodation party. The monthly debt obligation of the a loan might also affect the guarantor’s own applications for credit facilities.
For example, if the monthly home loan payment is $1,000, even though the guarantor is not the borrower of that loan, when he applies for his own mortgage, this $1,000 debt obligation will have to be taken into account when calculating debt ratios.
Finally, don’t confuse accommodation party with accommodating party.