When you’re looking to rent for the first time, it can be tough to know everything your landlord expects or what you need to qualify during the application process. Even if you have enough income and a good credit score, you still might not get approved for your rental apartment.
That's why some people resort to using a cosigner or guarantor when signing a lease.
But many people don't know the difference. If you find yourself in this boat, don't sweat it.
This article is talking all about cosigners vs. guarantors. This is what we're covering:
- What’s a lease guarantor?
- What’s a cosigner?
- Cosigner vs. guarantor
- Who can be your cosigner?
- Who can be your guarantor?
- Pros and cons of getting a guarantor
- Pros and cons of getting a cosigner
Let's hop right into it!
What’s a lease guarantor?
A lease guarantor is a person who cosigns a rental lease alongside the intended tenant. They agree to pay rent if the tenant fails to do so at any point during the lease’s term. Because lease guarantors take on a lot of financial responsibility for the prospective tenant, guarantors are often parents, friends, or family members, particularly if the prospective tenant was formerly one of their dependents.
Note that guarantors and cosigners are sometimes referred to interchangeably because they both have broadly the same responsibilities for tenants.
Like guarantors, cosigners must also pay rent if a property’s tenants fail to do so. In essence, lease guarantors provide landlords with a bit of financial peace of mind.
What’s a cosigner?
A cosigner is a person who signs a rental lease with you. In other words, the lease's liability gets split in two. It's between the cosigner and you.
Cosigners don’t have to live with you, but they are financially responsible for the cost of the rent.
Many cosigners actually contribute to the monthly rent by paying a part of it. Not to point any fingers, but this is pretty common between students and their parents.
Cosigner vs. guarantor
The average rental lease may use the guarantor and cosigner terms interchangeably, but they’re not the same thing.
Lease guarantors are legally required to pay rent if it is unpaid by the tenant they are bound to. However, lease guarantors do not share the lease with the tenant they financially protect.
Instead, cosigners have the same financial responsibilities as lease guarantors. But cosigners are usually added to the lease as another potential tenant.
Cosigners have the right to occupy the property in question, especially if the current tenant vacates the property while being delinquent on their rent.
Cosigners have a little more flexibility in terms of living situations. For example, a cosigner on a rental lease can live in the unit and pay their fair share of the rental price while simultaneously taking on responsibility for paying the rest of the rent if the other tenant defaults.
So, bottom line: cosigners might be immediately responsible for paying rent if they live on the property with their co-tenant. Lease guarantors do not live in the same property and are only responsible for paying rent if the current property tenant defaults.
Who can be your cosigner?
First of all, whoever you choose to ask should have good credit and a high enough income. The whole point of a cosigner is to boost your rental application.
The entire idea becomes redundant if you pick someone that can't afford the rent and has poor credit.
You should also opt for someone you’re close to. A family member or close friend are both good options. A lot of confidence goes into cosigning. So, you have to pick someone trustworthy but equally trusts you.
Who can be your guarantor?
Theoretically, anyone can act as a guarantor. But, most renters get someone close to them to take on this financial responsibility, such as family members and close friends.
On the other hand, some companies will volunteer to act as a guarantor on a lease agreement for fees. First-time renters should choose their guarantor carefully and remember the tremendous financial responsibility of the guarantor.
Pros and cons of getting a guarantor
Guarantor leases have several major advantages. Some of these include:
Pro: Guarantors can cover damages
Landlords always can approach the third party for damages or back rent if the tenant doesn’t pay on time.
Lots of guarantor leases even allow landlords to go straight to the guarantor instead of the tenant if they don’t receive a rent check promptly
Pro: Guarantors could prevent evictions
The presence of a guarantor on a lease is very useful for preventing eviction if a tenant is delinquent for one or more reasons
Pro: Adding a guarantor to your lease will help your renting chances
In some cases, adding a guarantor to a lease is easier than providing a higher than average security deposit. A guarantor can also make young tenants without a rental history easier to approve for landlords
Con: Guarantors are expense
Usually going to a guarantor will cost a month of rent, or more. Be prepared to pay your guarantor for services incurred.
Con: Guarantors are just as liable for the rent
Having a guarantor on the lease means that, if the guarantor also refuses to pay rent, the landlord must take two individuals to court. A guarantor will also be taken to court if the rent remains unpaid.
Con: Some guarantors don't cover outstanding payments
Not all guarantors are willing to pay rent for damages that their cosigner may incur, which can again make the eviction or payment recovery process more challenging
Pros and cons of getting a cosigner
People of all walks of life can benefit from getting a cosigner. Although getting one comes with many pros, there are also some cons you should be aware of. They won’t so much affect you (the tenant), but your cosigner.
Let’s go over the pros and cons of cosigning for an apartment.
Pro: Great for those with poor or no credit
Cosigners are going to be your best friend if you have a low or no credit score. The landlord reviews your cosigner’s credit score instead of just yours.
Their score balances out your low credit- a huge bonus when renting! It'll increase your chances of getting approved for an apartment!
Pro: Helpful for young people or first-time renters
Many landlords get apprehensive when renting to young or first-time renters. They don’t have any proof to show if they’re a responsible or reliable tenant.
As such, a cosigner acts like that extra vote of confidence. Cosigning is already a big commitment, so it shows the landlord that your cosigner trusts you.
Secondly, the landlord has a Plan B in case they run into issues with you during your tenancy. It’s pretty much a fail-proof plan to them!
Pro: A good option for people with poor rental history
It can be harder to find an apartment for those who have an eviction, broken lease, or default on their file. You can increase your chances of securing a rental apartment if you get a cosigner to back you up.
Pro: Great for those who have a lower or no income
Landlords typically pay close attention to your income. They want to ensure that you’re making enough to pay rent at the beginning of every month.
It can be very helpful to cosign with someone if you have a lower/no income. Your cosigner's salary supplements what you have to present to the table. It's almost like applying with two incomes!
Con: Can lower the cosigner’s credit
If you miss or default on a rent payment, this could negatively impact your cosigner's credit. It doesn’t matter whether they’re living in the apartment or not.
A missed payment can land on the cosigner's file if the landlord decides to report it to the credit bureau. Since the cosigner is also financially responsible for the rent, their credit gets hit.
Con: It can ruin relationships
Cosigning is a huge commitment. They’re legally bound to your lease. So, if you run into issues throughout your tenancy (aka you don’t pay rent), your cosigner has to pick up the pieces. These financial burdens could seriously damage or even ruin your relationship with them.
Con: They can be hard to find
As we’ve stated one too many times by now, cosigning is a big responsibility. As such, few people might be willing to cosign a lease with you. This makes things a little complicated if you’re really in need of one.
Con: Cosigners can be costly
If you can’t find a cosigner, you can always source someone to help you. Cosigning services are the perfect solution for those who don’t have anyone they can use.
Yet, these services cost a pretty penny. They'll run up those charges associated with applying for a rental.
There ya have it! These are the basics surrounding cosigners vs. guarantors.
If you're in the market for a new rental home, Lighthouse also gives cash back on newly signed leases. Find a home on your own or with the help of our team of experts, called Lightkeepers! Check out our website to find just the right rental home for you!