What is a Guarantor? All the Key Insights You Should Have

What Is a Guarantor? A guarantor is an individual who provides himself or herself as surety in a contract for meeting financial obligations. It is usually for a lease agreement.

Has this ever happened to you? You find the right place for yourself. However, when you are about to finalize the payment with the landlord, they insist on a guarantor being provided due to your credit score. This happens to a lot of people out there. If you have questions like what is a guarantor & why might I need a guarantor? then you are in the right place.

In this blog, we will discuss lease guarantors. If you intend to rent a space, this guide covers all the details of who a guarantor is and how to deal with them.

In the US, half of the people cannot afford to pay their rent, in one way or another

What Is a Guarantor on a Lease?

It is an individual who accepts the signing of a legal document to assume financial responsibilities for your apartment. They will not reside there and will not be entitled to make use of that property. But if you cannot afford to pay rent, they pay the rent on your behalf.

Typically, a guarantor is someone over the age of 18 who lives in the same country where the payment agreement takes place. They are expected to possess solid credit and financial stability to handle payments if the borrower doesn’t meet their obligations. Defaulting may put the guarantor’s assets at risk, and recurring late payments could incur extra fees or interest for them.

Key Takeaways: 

• A guarantor takes on the responsibility to cover a borrower's debt if the borrower fails to fulfill their loan obligations.

• By offering their assets as collateral, a guarantor ensures the loan is backed and secure.

• In some contexts, a guarantor serves as a reference, confirming an individual's identity for purposes like employment or obtaining official documents such as a passport.

• Unlike a co-signer, a guarantor has no ownership rights to the asset purchased with the loan but is still legally bound to the loan's terms.

Types of Guarantors

▪ Individual Guarantor

A private person pledges to fulfill the borrower’s financial or contractual obligations if the borrower defaults.

▪ Corporate Guarantor

A company or organization that guarantees to cover the financial or contractual obligations of another party (often a subsidiary or a partner).

▪ Limited Guarantor

A guarantor whose liability is restricted to a specific portion of the loan or obligation, rather than the entire amount.

▪ Unconditional Guarantor

A guarantor who accepts full liability for the borrower’s debt or obligation without any conditions or defenses, taking immediate responsibility if the borrower defaults.

What Makes Someone a Good Guarantor

Most rent guarantors are the tenant’s parents, relatives, or close friends. For this, they have to take pay slips along with bank statements and Social Security numbers to the landlord to get a quick credit and background check.

A good guarantor should possess the following qualities:

• Strong credit score: At least 700
• Stable and sufficient income
• A small proportion of debt and financial risk
• Relationship with the tenant should be trusted and reliable the tenant

What Does Guarantor Financial Responsibility Mean

A guarantor’s financial responsibility refers to the obligations and duties a guarantor assumes at the time of agreeing to back a tenant in a rental agreement. Now, having understood what is a guarantor, let’s understand what a guarantor is liable to pay. 

✔ Monthly Rent Payments: The guarantor steps in to pay any rent that’s left unpaid during the lease. 

✔ Late Fees: If the tenant is late with rent, the guarantor could be on the hook for any late fees listed in the lease. 

✔ Damage Costs: If there’s damage to the property (beyond normal wear and tear), the guarantor might need to pay for those repairs. 

✔ Legal Fees; In the unfortunate event of an eviction or legal action to recover unpaid rent, the guarantor could be liable for the legal fees too.

When Should You Consider a Guarantor

A rent guarantor is often needed by individuals who may not meet the traditional requirements for renting a property. This includes:

• First-Time Renters: Young adults, particularly students or recent graduates. They may lack a rental history or established credit, which makes landlords hesitant to approve their applications. 
• People With Less-Than-Average Credit Scores: Individuals with poor credit scores, often owing to past financial difficulties, may struggle to meet landlords’ requirements. A low credit score can indicate a higher risk for landlords, prompting them to seek additional security. 
• Self-Employed Individuals: Usually, they have irregular income streams. Therefore, it is challenging for them to provide consistent proof of income. Moreover, traditional pay stubs and tax returns might not adequately represent their financial stability. 
• Recent Immigrants or Relocators: New residents, whether immigrants or individuals relocating for work or personal reasons. They may not have established a credit history or references in their new area. This lack of local financial history can make it difficult for them to secure a lease. 
• Individuals With Limited Income: Renters whose income is insufficient to cover the rent on their own. This situation is common among part-time workers, or those just starting their careers. 

Advantages and Disadvantages of Guarantors

Advantages	Disadvantages
Increased Loan Approval Chances: A guarantor boosts the borrower’s eligibility for loans, even with poor credit.	High Financial Risk for the Guarantor: Guarantors must repay the debt if the borrower defaults.
Access to Better Loan Terms: Borrowers may secure lower interest rates and higher amounts with a guarantor.	Impact on Credit Score: A guarantor’s credit score can drop due to missed payments by the borrower.
Support for Borrowers in Financial Need: Guarantors help borrowers access funding for crucial needs like education or housing.	Legal and Financial Obligations: Guarantors may face lawsuits if they fail to cover the borrower’s debt.
Improved Credibility: A guarantor enhances the borrower’s reliability in the eyes of lenders.	Strained Relationships: Loan issues can create personal tension between the borrower and the guarantor.
A Second Line of Defense for Lenders: Guarantors minimize the lender’s risk by providing repayment security.	Limited Financial Flexibility: Acting as a guarantor reduces the ability to take on new loans.

Who Needs a Rent Guarantor

A rent guarantor is often needed by individuals who may not meet the traditional requirements for renting a property. This includes:

▪ First-Time Renters

Young adults, particularly students or recent graduates. They may lack a rental history or established credit, which makes landlords hesitant to approve their applications. 

▪ People With Less-Than-Average Credit Scores

Individuals with poor credit scores, often owing to past financial difficulties, may struggle to meet landlords’ requirements. A low credit score can indicate a higher risk for landlords, prompting them to seek additional security. 

▪ Self-Employed Individuals

Usually, they have irregular income streams. Therefore, it is challenging for them to provide consistent proof of income. Moreover, traditional pay stubs and tax returns might not adequately represent their financial stability. 

▪ Recent Immigrants or Relocators

New residents, whether immigrants or individuals relocating for work or personal reasons. They may not have established a credit history or references in their new area. This lack of local financial history can make it difficult for them to secure a lease. 

▪ Individuals With Limited Income

Renters whose income is insufficient to cover the rent on their own. This situation is common among part-time workers, or those just starting their careers. 

Guarantor vs. Cosigner

A guarantor is a backup who only steps in if the tenant/borrower fails. On the other hand, a cosigner is equally responsible for payments and the loan or rental agreement from the start. 

Let’s take a closer look at what sets them apart.

Guarantor	Cosigner
Secondary Responsibility: A guarantor only steps in to pay rent or debts if the tenant defaults on their payments.	Shared Responsibility: A cosigner is liable for payments from day one, not just when the primary party defaults.
Limited Involvement: Guarantors aren't typically involved in the rental agreement day-to-day.	Active Role: Cosigners are directly involved in the financial agreement when they co-sign the contract.
Stronger Credit Requirement: Guarantors usually need to have a strong credit score and financial history.	Equal Credit Impact: Any missed payments affect the cosigner's credit score just as much as the primary borrower’s.
Common in Rental Agreements: Guarantors are often used in rental agreements where the tenant’s income or credit is not enough to secure a lease on their own.	Common in Loans: Cosigners are more common in loan agreements (like student loans, car loans, or mortgages) to help individuals qualify for credit when their own financials aren't strong enough.
Legal Obligation: The guarantor’s obligation is to cover the unpaid rent or debts, but they do not share ownership or rights to the rental property or loan.	Ownership Rights:In some cases, a cosigner may have shared rights or benefits from the loan (such as owning a percentage of the purchased asset), but this depends on the terms of the agreement.

Need a Guarantor? Here’s How To Find One!

Thinking, “Who should I put as my guarantor?” Follow these steps to make the process smoother:

1. Reach out to Someone You Trust 

The best place to start is by asking someone close to you. In addition to this, it’s important they trust you and feel comfortable taking on this responsibility. 

2. Be Clear About What’s Involved

Make sure the person you're asking fully understands what is a guarantor and what responsibility it brings to their role. Let them know that if you can’t pay the rent, they’ll be responsible and that it could impact their credit. Honesty here is key, so they know exactly what they’re getting into.

3. Give Them the Heads-up on Documents

Your guarantor will likely need to provide things like pay stubs, bank statements, and their Social Security number for a credit check. Let them know what’s needed ahead of time when the landlord asks for paperwork.

4. Show You’re Responsible

Ease their concerns by explaining how you plan to pay your rent. Even if you have a steady job or savings, let them know. By doing so, it will reassure them that you’re serious about keeping up with your payments.

5. Respect Their Decision

Not everyone will feel comfortable being a guarantor, and that’s okay. If someone says no, respect their decision. Moreover, you can consider other options, such as finding a co-signer or offering a higher deposit to the landlord.

Guarantor Alternatives To Consider

▪ Professional Guarantor Services: You can use companies that act as guarantors for a fee. These services essentially step in and guarantee your rent for you, giving landlords peace of mind.

▪ Cosigner: If a guarantor isn’t an option, finding a co-signer could work. A co-signer shares the financial responsibility from day one, rather than being a backup like a guarantor.

▪ Paying Rent in Advance: Some landlords may agree to a deal where you pay rent for several months upfront. Realistically speaking, it shows you can cover rent ahead of time.

▪ Show Proof of Financial Security: If you don’t have a guarantor but have savings or steady income, provide documentation like bank statements or pay stubs. Consequently, it will help convince a landlord. 

Also, what you can focus on are:

Credit Building Habits

If you're planning ahead, start working on building a solid credit history.

1. Pay Bills on Time: Consistently meeting payment deadlines improves your credit score.
2. Keep Credit Utilization Low: Use less than 30% of your credit limit to demonstrate responsible borrowing.
3. Monitor Your Credit Report: Regularly check your credit report for errors or fraudulent activity.
4. Build a Mix of Credit Types: Maintain a mix of installment loans and revolving credit for a healthier profile.
5. Avoid Frequent Credit Applications: Limit hard inquiries to prevent negative impacts on your score.
6. Maintain Old Credit Accounts: Keep older accounts open to benefit from a longer credit history.
7. Pay More Than the Minimum: Paying more than the required amount reduces debt faster and shows financial discipline.

Or, DIY Through an App

Building Your Credit

What’s even better is to boost your credit score through a DIY Credit Repair App-CoolCredit.

With the CoolCredit App, repairing your credit just got a whole lot simpler. It systematically scans your credit report for negative items and helps you turn them around. Additionally, you can set up a Booster Payment Plan. Consequently, CoolCredit will report your positive payment to efficiently boost your credit profile. Moreover, you can boost your score multiple times for continuous improvement, too.

Conclusion

With a clearer understanding of "What is a guarantor?" you can analyze whether you need one. This arrangement helps both the tenant and the landlord by providing an added layer of security and assurance in the rental process.

If you can’t find a guarantor, don’t worry! The best option is to focus on boosting your credit score. Not only will this help you manage your current financial obligations, but it’ll also set you up for future ones. And the best part? Building your credit can be super easy with the CoolCredit App by your side! 

Take control of your financial health, DOWNLOAD THE APP NOW!

FAQs

Q: Can Your Guarantor Be out of State or Out of the Country?

A: Yes, a guarantor can be out of state or even out of the country, but it depends on the landlord’s policies. Some landlords may prefer local guarantors due to easier communication and legal processes.

Q: What if You Don’t Have Anybody To Be Your Guarantor?

A: If you don’t have anyone to act as your guarantor, consider alternatives like:

• Pay a larger security deposit
• Use a guarantor service
• Show proof of savings
• Build your credit score
• Get a co-tenant
• Negotiate shorter lease terms

Q: Can Anyone Be a Guarantor?

A: Not just anyone can be a guarantor. A guarantor typically needs to have a strong credit history, stable income, and the ability to cover rent or expenses if the tenant is unable to pay. 

Q: Can You Combine Guarantors?

A: Yes, some landlords may allow you to combine guarantors if one individual doesn’t meet the financial criteria alone. This means multiple people can share the responsibility of guaranteeing the lease.