What is a Guarantor?

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A guarantor is someone who agrees to pay the debts of another person if that other person can’t or doesn’t pay.

🤔 Understanding guarantors

Guarantors are often necessary when someone is renting an apartment or borrowing money. If the person renting the apartment doesn’t have the credit or rental history that the landlord requires, then the prospective renter might apply with a guarantor. The guarantor promises to pay the rent if the tenant fails to do so. In the case of taking out a loan, a guarantor promises to pay off the balance of the loan if the borrower stops making payments. Because a guarantor for a lease or loan signs a contract, they are legally responsible for the money that the tenant or borrower owes, and the creditor (meaning the party to whom money is owed) can come after the guarantor.


Let’s say that Susie has just graduated from high school and is moving out on her own for the first time. Susie has a decent job and feels confident that she’ll be able to pay the monthly rent at her new apartment. The problem is that Susie has never had a credit card or rented an apartment, meaning she has no credit history or rental references for the landlord to check. The landlord has no way of knowing whether Susie is good for the money. Rather than just denying her application, the landlord might allow Susie to sign the lease with a guarantor, meaning someone who will agree to pay the rent if Susie fails to do so. Susie’s parents know she’s responsible enough to pay her monthly rent, and so they agree to sign the lease as her guarantor, fully aware that they’ll be on the hook for the rent if Susie doesn’t pay.


A guarantor is like an insurance policy for a lender…

Anytime you’re lending someone money, you’re taking on some amount of risk that the person might not pay you back. When people have poor credit histories (or no credit history), that risk is even higher. That’s where guarantors come in. Just as someone might take out an insurance policy to cover himself or herself if their car breaks down, a lender might require a guarantor who will cover them if a borrower stops paying on his or her debt.

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What is a guarantor?

A guarantor is someone who signs a contract agreeing to pay the debts of another party if he or she fails to pay. The two primary situations in which someone might need a guarantor on a contract is in the case of renting an apartment or taking out a loan. A guarantor might be necessary if the original applicant doesn’t have the income, credit history, or rental history to qualify on his or her own.

Suppose you needed to take out a loan, but the bank or credit union said your credit score wasn’t high enough to qualify. Instead, the lender might offer you the option of having a guarantor, who signs a separate contract with the lender agreeing to pay back the loan if you fail to do so.

What is the difference between a guarantor and a co-signer?

A guarantor is someone who signs a contract agreeing to cover the debts of another party if that party fails to pay his or her debts (often in the case of a loan or rental agreement). The term co-signer is often used interchangeably with the term guarantor, but there are some key differences.

In a rental, a co-signer is essentially another tenant — they have a legal right to occupy the rental. A guarantor, on the other hand, is liable for the debt but has no right to occupy the apartment.

In a mortgage, a co-signer is equally as liable for the mortgage payments as the primary borrower. A guarantor, however, has slightly more protection. In most jurisdictions, the lender has to have exhausted all avenues to collect from the primary borrower before it can demand payment from the guarantor.

Why are guarantors needed?

A guarantor might be necessary when someone applies for an apartment or a loan and is unable to qualify because of his or her financial circumstances. First, it might be the case that the applicant doesn’t have the income necessary to qualify. Landlords and lenders often require a minimum debt-to-income ratio or rent-to-income ratio. If your income is too low, you might need a guarantor.

You might also need a guarantor if you don’t have sufficient rental history to qualify on your own. When you apply for an apartment, the landlord often requests your rental history, so he or she can contact your past landlords and ask whether you were a good tenant and paid your rent on time. With no rental history, the landlord has no way of knowing if you’re someone who pays his or her rent.

Finally, you might need a guarantor if you don’t have the credit score that the lender or landlord requires. Lenders and landlords usually run credit checks before approving applications. If you have too low of a credit score or too many negative marks on your credit report, then you might not be able to qualify without a guarantor.

What are the responsibilities of a guarantor?

As a guarantor, you don’t have any responsibility unless the renter or borrower for whom you agreed to be a guarantor stops paying the amount that he or she owes. If you’re a guarantor for someone renting an apartment, you are responsible for paying the rent if they fail to do so. If you are a guarantor on a loan, you’re responsible for paying the debt if the borrower doesn’t. Not only might you end up having to pay the amount of the loan or past-due rent, but you could also be stuck with late fees or collection costs.

As a guarantor, you’ve entered into a contractual agreement with the other party (usually a landlord or bank). The creditor that is owed money has a right to recoup its losses. If you as the guarantor fail to pay the debt, then the creditor or a collection agency can come after both you and the original borrower. The creditor can take legal action against you both, and you both could see a negative impact on your credit reports.

What does a guarantor need to provide?

When you fill out an application for a loan or apartment, there’s a lot of information you’ll have to provide. You’ll have to share your income so the creditor can make sure you make enough money to pay your bill every month. You might need to provide pay stubs or bank statements to provide this information. You’ll also have to provide your social security information so the landlord or lender can run a credit check on you.

When you apply with a guarantor, he or she will have to provide all the same information as you. Just like with the primary borrower, the creditor wants to make sure that the guarantor is in a position to pay the debt if the borrower can’t.

What are the requirements to be a guarantor?

Each landlord or financial institution will have minimum requirements to qualify for an apartment or a loan. If the borrower doesn’t meet those requirements themselves, they’ll have to find a guarantor who is willing to co-sign the contract with him or her to guarantee payment of the debt. In the case of a guarantor, creditors have the same requirements. So if a bank has a minimum credit score of 620 to get a loan, then that requirement extends to both the borrower and the guarantor.

Some organizations might have residency requirements for guarantors. For example, some lenders may require that the guarantor live in a different household than the borrower. Suppose you were applying for a loan and didn’t qualify on your own. The bank may allow you to use a guarantor, but they might prevent your spouse from being your guarantor if he or she lives in the same home.

What are the rights of guarantors?

If you sign onto a lease or loan contract as a guarantor, you might be stuck footing someone else’s bill. But just as the borrower and the lender have rights, you as the guarantor have rights as well. First, the Fair Debt Collection Practices Act provides protections to borrowers when dealing with collection agencies. The act gives you the right to dispute a debt or request in writing that a collection agency stop calling you. Even though you aren’t the original borrower, these legal protections extend to you as well.

The rights of a guarantor also vary from state to state. Some states have laws in place that prohibit creditors from going after the guarantor for payment until they’ve exhausted their options going after the original borrower. This protection does not exist in every state, so be sure to look into your state’s laws.

How do you find a guarantor?

If you’re trying to rent an apartment or take out a loan and don’t have sufficient credit history to do so, you might find yourself needing a guarantor to co-sign the contract with you. It’s up to you to find a guarantor — The landlord or lender isn’t going to do that for you.

Often a guarantor is a friend or family member who agrees to sign the contract with you. If you need a guarantor, speak with the people who know and trust you the most. Since a guarantor will be legally responsible for paying your debts if you fail to do so, you’ll probably need to find someone who is confident in your ability to pay the bill yourself.

Be sure that whomever you ask to be your guarantor is in a financial situation to do so. If you’re 18 years old and can’t get an apartment because of your lack of rental history, a friend in the same situation probably won’t serve as an effective guarantor.

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