Aha, the words “Guarantor OK” or “Guarantors accepted” have you curious. Well, you’ve come to the right place and are about to uncover the power of having a guarantor in your corner.
What’s up with guarantors, and what do they have to do with your loan or lease agreement? Here’s the low down on what you really want to know.
A guarantor is someone who guarantees something, wow, wild, right? Yes, basically, a guarantor guarantees that a creditor will be paid even if you cannot make a payment yourself.
Say you’ve taken out a loan or are looking to rent your first apartment, well, having a guarantor means that the creditor or landlord will receive payment from someone else (your guarantor) if you aren’t keeping up with the bills.
Usually, you and your guarantor will sign a document saying that you will be making payments, and if you fail to do so, the guarantor will. Guarantors ensure there’s less risk to the creditor.
When Do You Need A Guarantor?
You’ll need a guarantor for specific situations in which creditors don’t put 100% of their faith in you to pay your bills on time.
When looking at your application for a loan or apartment rental, creditors and landlords will look at several numbers and then determine whether or not you’re a trustworthy candidate.
If your stats don’t give a creditor the impression that you’ll be able to make on-time payments, they’ll ask if you have a guarantor to sign a guarantor lease along with yours. The responsibility to make payments will then be placed on you and your guarantor in combination, making the situation less risky for the creditor.
Suppose you’re looking to rent a studio apartment in beautiful (and expensive) New York City. The month’s rent for the apartment is $1500. You may notice that the listing asks for the prospective tenant to make 40x the rent payments; this would equate to a salary of $60,000. In this case, if your income is below $60,000, you’ll need a guarantor to secure the apartment.
Not only will a landlord want to see that you’re financially stable, but that you’re responsible with your money; they’ll be checking out your credit history. Your credit history will tell the landlord if you’ve ever missed a payment and what your credit score is. If your credit report isn’t strong enough to give a landlord confidence, then they’ll most likely ask you if you have a lease guarantor or co-signer.
Basically, you’ll need a guarantor whenever your income or credit report isn’t the most reassuring to a creditor or lender.
Agreements In Which You Can Use a Guarantor:
- Paying rent for a rental property
- Taking out a mortgage or real estate loan
- Taking out a loan to finance a car
To be frank, in any instance in which you’re guaranteeing a creditor they’ll be getting their money, you can negotiate the use of a guarantor.
Who Can Be Your Guarantor?
Practically anyone can be your guarantor; they just need two things:
1. A credit history and income that’s more reassuring to creditors
2. Trust in you that you’ll make your payments and not stick them with the burden
Usually, your guarantor will end up being a family member or a close friend; remember, they have to be willing to pay your bills when you can’t. Your guarantor is equally responsible for whatever payment you owe and is risking their credit for you.
There’s also such a thing as guarantor insurance. Guarantor insurance companies act in the same way that a personal guarantor would if you don’t have someone to lean on per se. Guarantor service is pretty easy to come across and typically requires a security deposit equal to one month’s rent or payment charge.
How To Avoid Using A Guarantor
Although guarantors are great assets to both you and lenders, many of us don’t like the idea of putting the burden of our agreements on someone else, especially our loved ones.
If you want to avoid using a guarantor, you’re going to need to prove that you're financially responsible and beef up that credit score of yours.
We understand how difficult it can be to build your credit score without credit or bounce back from slip-ups in the past, but there are always ways to overcome credit mishaps.
You can build your credit score without credit, and one of our favorite ways to do so is with the help of the Extra debit card. Extra is the first debit card that helps you build credit. Simply sign up on Extra.app, connect your account to your bank, and swipe away like you usually would.
As you make purchases, you’ll begin to build a credit score that will impress landlords and creditors, meaning you won’t need a guarantor for your apartment or mortgage.
Having a solid credit score will unlock plenty of opportunities for you and give you the financial freedom to make big moves without depending on anyone else, of course, aside from the Credit Wizard.
We wish you luck as you sign those life-changing documents all on your own!