Guarantor Vs Cosigner

With rent prices rising across the nation, some prospective renters may be looking for a guarantor or co-signer for their apartment application. Let’s take a look at what both terms indicate, and what the differences are between the two options.

What Is A Guarantor?

Also referred to as a lease guarantor, a rent guarantor, is an individual who agrees to pay rent if a tenant cannot make the payment. This puts the guarantor on the hook for terms dictated in the lease agreement or contract. This can include not only paying the monthly rent but also any move-in and move-out fees, late fees, or other rent-related charges.

A guarantor offers a layer of protection for landlords. For prospective renters, having a guarantor can also make them a stronger candidate when submitting an application for a unit.

Rent guarantors are typically parents, relatives, or close friends of the prospective renter. In order to qualify as a guarantor, you will need to provide the landlord with a lot of information. This usually includes proof of income, bank statements, and a Social Security number for a thorough background and credit check.

If the renter is having a difficult time finding a guarantor, there are some guarantor companies that can be hired to guarantee the lease. However, these services do not come for free. Renters can expect to pay these companies roughly 4%-10% of their annual rent.

What Is A Co-Signer?

In the context of rental properties, including apartments, a co-signer will agree to sign the lease alongside a prospective renter and share the responsibility for rent and utility payments. Individuals who have low credit scores or limited to no credit history at all may have trouble being approved for something like renting an apartment.

Having a co-signer on an application or lease will help reduce the risk that the property owner takes on. Co-signers typically make the owner feel more comfortable with an imperfect applicant, which only increases the odds of being approved for the apartment.

Co-signers are beneficial for rental agreements as well as student loans, mortgages, personal loans, and other types of debt. While almost anyone with a solid financial history can be a co-signer, they are usually family members or friends of the renter.

Differences Between Guarantor And Co-Signer

The biggest difference between the two is how soon each individual will become responsible for the borrower’s debt. A co-signer is responsible for every missed payment, while a guarantor only assumes responsibility if the borrower falls into total default.

Guarantors and co-signers can offer conscientious borrowers some much-needed help. Just keep in mind that doing so is a serious financial commitment.

Pros And Cons Of A Guarantor Or Co-Signer

There are numerous benefits of having a guarantor or co-signer, especially as a first-time renter. For example, a co-signer can help the renter access credit history that they wouldn’t qualify for without the help. These renters may also be offered lower interest rates and better loan terms, which will ultimately help save money in the future.

Of course, the guarantor or co-signer may be putting themselves at a financial risk. However, despite these risks, oftentimes this arrangement is worth the gamble in order to help out a family member or friend.

Who Needs A Guarantor Or A Co-Signer?

There are many reasons why a prospective renter may need a guarantor when applying for an apartment. Let’s look at a few of the common reasons below.

Students

College students studying full-time could benefit from having a guarantor on their lease.

First-Time Renters

Landlords will typically feel more comfortable renting to someone with no rental history if they have a guarantor.

People With Bad Credit

A bad, lack of credit history, or no history at all can be quite an obstacle without the presence of a guarantor.

People Who Earn A Low Income

Individuals who cannot meet the landlord’s income standard should look for a guarantor. This also applies to individuals who happen to have a sporadic income.

Guarantor Or Co-Signer Alternatives

Of course, there are a few alternatives to having a guarantor, including the following options.

Rental Assistance

Eligible low-income earners may qualify for rental assistance from either government agencies or community organizations.

Roommate(s)

Finding a roommate is always a great way to lessen your monthly rent payment.