What Is a Guarantor and How Do You Find One?
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Guarantors are people or third-party companies who provide financial safeguards for renters. A guarantor accepts responsibility for fulfilling the conditions of a lease or loan if the renter or borrower cannot make payments or otherwise defaults on the lease. Renters may need a guarantor if they have poor credit, low income or they’re a non-U.S. citizen.
Imagine this scenario.
A person is in the market for an apartment. After weeks or months of searching, it is finally within their reach. All they need to do is sit down and sign the paperwork for the lease, and they can take the keys.
Except, as it turns out, there is a complication. Perhaps their credit history is insufficient, or they have never rented an apartment. They do not qualify for the loan without a little help from their friends (or someone else who can vouch for them).?
All is not lost, though. In this situation, they may still be eligible to borrow the money. They need to find a person to help them: a guarantor.
The use of guarantors is not exclusive to apartments, however. Guarantors can also ensure a business seeking a loan earns approval.
Defining a Guarantor
A guarantor assumes responsibility for paying rent — and other charges a tenant incurs during the lease term — if the tenant cannot pay. Guarantors do not have the right to occupy a rental apartment. A guarantor can be anyone willing and able to take responsibility. Most people, when seeking a guarantor, choose one of the following:
There are other rules associated with guarantors. They must be over 18 and reside in the country of the payment agreement. Most guarantors have excellent credit histories and enough income to cover default loans or lease payments. Guarantors may also be responsible for additional interest in the event of chronic overdue payments.
Limited vs. Unlimited Guarantor: What's the Difference?
Most lease or loan agreements define a guarantor as limited or unlimited. This most often refers to the financial involvement of each party.?
For example, an unlimited guarantor is likely liable for the total loan or lease amount throughout the contract.
A limited guarantor might only be responsible to pay a certain percentage of the loan or lease, or guarantee the lease for a specific period. Once those provisions expire, the borrower will be accountable for the consequences of a default.
Guarantor vs. Co-Signer: What's the Difference?
Some people may use the terms “guarantor” and “co-signer” interchangeably, but they are not the same. A cosigner is functionally another tenant. They sign the lease simultaneously as the renter and have occupancy rights for the unit. While the co-signer may live in the rental and pay their share of the rent, they are also responsible for paying the other portion if the other tenant defaults on payments.
When Do You Need a Guarantor?
Not everyone needs a guarantor, but there are some common scenarios where a prospective renter might. Finding one (or having one lined up already) can help a prospective renter avoid missing out on a great apartment when housing is tough to find and prices are increasing. The first step in finding a guarantor is knowing why a person might need to seek one out in the first place.
Low Credit Score
Many rental companies and property owners require renters to have a minimum credit score. Landlords use this to help predict a person’s likelihood of making rent payments on time. Credit scores also include information about evictions, loan defaults and bankruptcies.
The bad news: There is no standard. Minimum scores vary by city, neighborhood and landlord policy.
The good news is that a guarantor can help an applicant sidestep that requirement. This is especially important for renters who have subpar credit or who don’t have a credit history.
Low Income
New college graduates might not have the necessary income to demonstrate they can afford rent payments and other living expenses. Many leasing companies require proof of income in past pay stubs or an employment offer letter.
Like credit history, a guarantor can help a first-time renter with this issue.
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Non-U.S. Resident
International students or non-residents who plan to live in a private property in the United States will likely need a guarantor. This is because they probably don’t have a credit record or proof of income to offer landlords.?
Only Meet Some Lease Requirements
For renters who only meet some of the requirements to rent an apartment or house, a guarantor can help smooth things over. Landlord requirements can vary from property to property.
How to Find a Guarantor
Depending on a person’s financial situation, finding a guarantor might be trickier for them than others. Technically, a guarantor might be anyone willing to guarantee the lease. Still, this is a sensitive situation. Most people choose someone who is close to them.
While many landlords prefer a guarantor who lives in the same city or state as the property, many will accept a guarantor who lives out of state and meets the financial requirements.
Ask a Close Family Member or Friend
The most obvious choice for a guarantor is a family member, typically a parent or guardian. In some rare cases, it might be a close friend. A person may also reach out to their boss if they have a close-knit relationship with them (although there may be better choices, especially if there is any risk of default or non-payment).
Research Third-Party Services
Third-party guarantor services are increasingly popular for those who do not have an eligible family member or close friend. Companies such as TheGuarantors and Insurent provide services to help renters qualify for their lease agreements.?
Learn the Guarantor's Requirements
Most third-party guarantors will likely have credit and income requirements of their own. Some friends and family may be more than happy to help a potential renter out, but it is still a good idea to understand the details.?
Fill Out an Application
If using a third-party guarantor, the renter must fill out the application for those services and share the information with the property owner. Do not omit any information to try and look better to either party.?
Meet With Your Potential Guarantor
Even if the conversation and application go well, it is essential to meet with the guarantor and ensure they are on board. This is especially true if the guarantor is a close friend or family member.
Finalize the Agreement
Whether the guarantor is a third party or a close friend, finalize the agreements with them and the property owner. If working with friends or family, put details in writing to avoid hurt feelings (or legal complications) down the road.
Final Thoughts on Finding a Guarantor
Using a guarantor does not make someone an unreliable renter. And finding a guarantor to help secure a lease on an apartment does not need to be a complicated process. Guarantors can help young professionals set down roots in a new city or aid a person to get back on their feet. Even individuals from outside the country can secure their dream apartment.
Top Takeaways
What Is a Guarantor and How to Find One?
(Reporting by NPD)