Why Would I Need a Guarantor or a Co-signer?
You may need a guarantoor or a co-signer if you have low wages, poor or bad credit history, or if your landlord needs extra assurance that you can make regular monthly payments.
If your rental application was rejected, there may be several reasons for this. Most often, landlords and property managers pay attention to such factors as income, outstanding accounts, credit history, and so on. So they want to reduce risk and make sure you can actually make regular monthly payments.
However, even if you do not have the best credit history, you still have a chance to get approved. You can still use the services of a guarantor or co-signer to increase your chances. Although these terms are similar, they are still different things. Below you can learn more about both co-signer and guarantor and decide which one suits you best.
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Why Would I Need A Guarantoor Or A Co-signer?
Here you can explore some of the main reasons why you might need help:
- Income. First of all, you should know that when a property manager or landlord reviews your application, income is one of the main factors influencing its approval. Most often, in order to understand whether you can afford the rent is called the 40X rule. This means that your gross salary must be 40 times your monthly rent.
- Bad credit. Another common reason for refusal is a bad credit history, as such borrowers are also risky for the lender. According to Experian, one of the major credit bureaus, a credit score of 700 or more is good. However, if your credit is below 600 you may have trouble getting approved.
- Rent is high. If the monthly rent seems high enough to you and you are confident that you can handle the payments yourself, then a guarantor or a co-signer may be a great option for you.
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A Guarantor: Main Information
A guarantor is a person, usually a friend or family member, who vouches for you with their financial position. Thus, the guarantor signs a lease or loan agreement with you and undertakes to make payments for you if you cannot or do not do it yourself.
Why does a guarantor increase your chances? If you have insufficient income or not the best credit history, then your landlord may ask you to provide a guarantor - a person with sufficient income and good credit who can make payments for you. In this way, the landlord greatly reduces his risks. However, you should understand that if you fail to make timely payments, then you may ruin your relationship with your guarantor. It is also worth noting that most often the guarantor cannot live in the house or apartment for which the contract is concluded.
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A Co-signer: Main Information
A co-signer is also the person who vouches for you and will make the payments, but is responsible for the lease with you from day one. Most often, a co-signer is also someone you know well, such as a friend or family member. It is also important to note that, unlike a guarantor, a co-signer can live with you in an apartment or house as a tenant.
So, if you have bad credit, then a co-signer can be a great solution if he has a good income and an excellent credit history. However, it is important to pay attention to the fact that, as already mentioned, he is responsible for payments from the very first day. Thus, if you miss payments, this will also be reflected in his credit report (and also in yours if your landlord reports payments to credit bureaus). So, both your credit history and your co-signer's credit history may suffer. Or, on the contrary, if you make timely regular payments, then your credit history will be improved.
Co-signer Vs Guarantor: What Should I Choose?
So, as already mentioned, both the guarantor and co-signer have their own obligations that they must fulfill, but who should you choose? If you can't make this decision on your own, keep reading.
So, if you want someone to share an apartment or house with you and also split the bill, then a co-signer might be the right option for you. Despite the fact that he is not obliged to live with you, many do so. Also, if you do not have a high enough income or not the best credit history, then this option may be a solution. However, it is important to remember that failure to make payments on time will affect your co-signer's credit history.
In the event that you want to live alone but need some sort of financial guarantee in order for the landlord to see that you can make payments, then a guarantor might be a good option. Unlike the first option, he will only be responsible for your payments if you are unable to make them yourself. More often than not, for many people, this option is more attractive, since a guarantor does not have to bear full financial responsibility, unlike a co-signer.