A cosigner on a rental property is someone who signs a lease with you and assumes equal liability for paying the rent, while a guarantor is only liable to make payments when the primary borrower can't or won't pay. You may be required to have a guarantor or cosigner when you rent a home if your credit, rental history or income do not meet the landlord's requirements.
What Is a Guarantor?
A guarantor is someone who vouches for you financially and can be a friend, family member or even a third-party service. The guarantor signs the rental agreement with you and ensures rent payments are made on time if you fall behind or can no longer make the payments yourself. As a rule, guarantors are not entitled to live with you as a tenant in the apartment.
If you have poor credit, no rental history or low income, your landlord may require a guarantor who has collateral, stellar credit and a steady income on the lease agreement to offset any risk of nonpayment by the primary renter. However, if you miss rent payments, your guarantor could lose their collateral and put your relationship at risk.
What Is a Cosigner?
A rental agreement cosigner also signs a lease with you and takes on shared responsibility for making payments from day one. Unlike a guarantor, a cosigner can live in the apartment with you as a tenant if you choose. A cosigner could be a family member, friend or someone you know well.
If your credit is poor or you can't qualify for an apartment on your own, a cosigner with good to excellent credit and a stable income can help. But because a cosigner is also legally responsible for all payments, any missed payments will appear on their credit report as well as on yours if your landlord reports rent payments to the credit bureaus. If that happens, both your credit and your cosigner's credit can take a hit.
On the flip side, if your landlord reports your payments and you make all payments as agreed, your credit and your cosigner's credit can strengthen over time.
Should You Get a Guarantor or a Cosigner?
Either a guarantor or cosigner can open the door, so to speak, if you can't qualify for a rental unit on your own. They both also have legal and financial obligations once they've signed the rental agreement. However, there are times when using one has the advantage over the other.
When to Get a Cosigner
If you want a roommate to share your space and split the rent, you may want to consider adding a cosigner to the lease agreement. Although a cosigner doesn't have to live in the apartment with you, many do. If you can't qualify on a rental agreement because of poor credit or no rental history, you might also want a cosigner.
As a cosigner, it can fall on you to pay your roommates' share of rent and fees if they don't. Even if you pay your portion of the rent, you might face eviction if your roommates don't pay their fair share and you can't make up the difference on your own.
When to Get a Guarantor
If you prefer to live alone but need someone to back you up financially so you can qualify for a lease, a guarantor is a good option. However, a landlord may ask a guarantor to put up collateral on the rental agreement. That means if you or your guarantor can no longer make payments, your guarantor could lose the collateral.
For many, serving as a guarantor is less appealing than becoming a cosigner because a guarantor has total financial responsibility without any rights to live in the unit. It's important to understand both your obligations and your guarantor's obligations before signing the lease agreement.
The Bottom Line
Getting a little help from your friends or a third party can help open the door to your new apartment. But it comes with a fair share of responsibility. Both a guarantor and cosigner sign the lease agreement and are responsible for any payments if you can no longer make them yourself.