Adding either a guarantor or cosigner to a loan can increase your odds of approval. But while these supportive roles are similar, they are not exactly the same.
Both a guarantor and a cosigner agree to cover a borrower’s debt if the borrower fails to repay what they owe. The key difference is that a cosigner is responsible for the loan right away, whereas a guarantor isn’t responsible for repayment unless the borrower fully defaults on the loan.
Whether you’re looking for a cosigner or guarantor, or thinking of acting as one or the other, there are some key differences both parties need to understand. Here’s a closer look at guarantors versus cosigners.
Is a Guarantor the Same Thing as a Cosigner?
The short answer: No.
Guarantors and cosigners fulfill similar roles: They help make it possible for a primary applicant with poor or limited credit to be approved for a loan by agreeing to take responsibility for the loan should the primary borrower become unable to pay. (These terms can also come into play when someone without a strong credit or income history is looking to rent an apartment.)
But there are some key differences between a guarantor and a cosigner. The biggest is how soon each individual becomes responsible for the borrower’s debt. A cosigner is responsible for every payment that a borrower misses. A guarantor, on the other hand, only assumes responsibility if the borrower falls into default on the loan.
Acting as cosigner versus a guarantor also impacts your credit in different ways. In addition, which role you take on affects how much access you have to information about the loan.
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What Is a Guarantor?
A loan guarantor is someone who promises to pay a borrower’s debt if the borrower defaults on their loan obligation. This reduces the lender’s risk and, as a result, they might offer guarantor loans to applicants who wouldn’t qualify on their own.
Unlike a cosigner, a guarantor isn’t responsible for every payment that a borrower misses. They only need to step up when the primary borrower has defaulted on the loan. A default means a borrower has failed to repay the funds according to the initial agreement. With most consumer loans, this typically involves missing multiple payments for several weeks or months in a row.
Simply becoming a guarantor will generally not impact your credit reports and credit scores. But if the loan falls into default, leaving you responsible for all outstanding payments, it will be added to your credit report. If you fail to repay the money owed, your credit rating could be negatively impacted.
Being a guarantor for a rental property is similar to being a guarantor on a loan — it involves you vouching for the tenant. If the tenant is unable to meet their obligations under the tenancy agreement, you (the guarantor) will be legally bound to cover the overdue rent or any damage to the property.
As a guarantor, you have the responsibility of repaying the debt, but you don’t have any legal right to the loaned money, anything purchased with the loan proceeds, or to live in the dwelling if you’re acting as a guarantor on a lease.
What Is a Cosigner?
A cosigner is someone who applies for a loan with someone who may not qualify on their own and takes equal responsibility for the account. For example, many parents act as cosigners on their children’s student loans, since young people tend not to have long and robust credit histories.
Unlike a guarantor, a cosigner’s liability begins right away. Cosigners are responsible for any payments that the borrower misses. If the borrower defaults, the cosigner is also responsible for the full amount of the loan.
The debt account and payment history will appear on both the primary borrower’s credit report, as well as the cosigner’s credit report. And, depending on how the primary borrower manages the account, the loan could help or hurt both the primary borrower’s and the cosigner’s credit scores.
If the primary borrower defaults on the loan, lenders and collections agencies can try to collect the debt directly from the cosigner.
Although the cosigner is legally obligated to make payments if the borrower can’t, they have no rights to the loan proceeds.
A cosigner is not the same thing as a co-borrower in that they don’t have any claim on the loaned asset. Also, unlike a co-borrower, a cosigner’s intention is to boost the creditworthiness of the borrower, not to jointly repay the debt.
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Guarantor vs Cosigner: The Similarities
Both guarantors and cosigners pledge their financial responsibility for the debt to strengthen the primary borrower’s application. And, in both cases, they may become responsible for repaying the debt.
Another thing guarantors and cosigners have in common is that they do not have any right to the loaned money, or assets purchased with the money (one exception: the cosigner on a lease may be entitled to live on-site).
Guarantor vs Cosigner: The Differences
The main difference between a guarantor and a cosigner is the level of legal liability for the debt.
A cosigner is responsible for repayment of the debt as soon as the agreement is final and can request to have loan statements sent to them, so they’ll know right away if any payments have been missed. A guarantor, by contrast, is only responsible for repayment of the debt if the primary borrower defaults on the loan and will only be notified at that point.
There are also differences in terms of credit impacts. A cosigner will have the loan added to their credit report and any positive or negative payment information that the lender shares with the consumer credit bureaus can have a positive or negative impact on their credit. Becoming a guarantor, on the other hand, will not have an impact on your credit unless the primary borrower defaults on the loan.
| Cosigner | Guarantor | Guarantor |
|---|---|---|
| When financial responsibility begins | Right away | Only when/if the primary borrower defaults |
| Credit impact | Loan appears on credit report | Loan will not appear on credit report unless the borrower defaults |
| Right to loan proceeds? | No | No |
| Access to loan information | Can request monthly statements at any time | No access to statements |
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Personal Guarantor vs Cosigner: Pros and Cons
If you are the primary borrower and deciding between a guarantor and cosigner, the choice may come down to which kinds of loans are available (guarantor loans can be harder to find than loans allowing a cosigner) and what kind of agreement you’re entering into. If you’re signing a lease with a roommate, that person should be a cosigner rather than a guarantor.
If you’re thinking of acting as a guarantor versus a cosigner, here’s a look at the benefits and drawbacks of each.
Pros and Cons of Being a Guarantor
Pros:
• Helps a borrower obtain a loan more easily
• Can help a borrower get approved for a larger loan amount or more favorable rates and terms than they would be able to get on their own
• Helps a borrower build credit and learn how to manage credit responsibly
Cons:
• Your credit score could be impacted if the borrower defaults on the loan
• You’ll be liable for the full debt if the borrower defaults on the loan
• Should the borrower default, your ability to obtain another loan for a different use may be limited
Pros and Cons of Being a Cosigner
Pros:
• Helps a borrower obtain a loan more easily
• Can help a borrower get approved for a larger loan amount or more favorable rates and terms than they would be able to get on their own.
• Helps a borrower build credit and learn how to manage credit responsibly
Cons:
• Your credit could take a hit if the borrower pays late or misses payments and the lender reports the delinquency to the credit bureaus
• You will need to make any payments the primarily borrower misses
• If need to apply for credit for yourself, the lender may deny you because your current debt levels are too high
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Do Guarantors Get Credit Checked?
Yes — as part of the application process, the lender will carry out a credit check on you. However, this is normally a “soft” credit check which will not be visible to other companies and won’t impact your credit score. Generally, a guarantor will need a robust credit and income history to make up for the applicant’s shortcomings.
When Is a Cosigner or a Guarantor a Good Option?
Recruiting a cosigner or guarantor can be a good option if you have low credit scores or a limited credit history and are looking to get a personal loan, student loan, mortgage, auto loan, or other type of credit. This can not only help you qualify for the loan but also give you access to better rates and terms than you could get on your own.
Taking out a loan with a guarantor or cosigner — and making regular on-time payments on that loan — can help you build your credit. This can help you qualify for more types of loans and better rates in the future without a cosigner or guarantor.
Just keep in mind that if you ask a trusted friend or family member to act as a cosigner or guarantor and you fail to make timely payments, you could put a significant strain on your relationship. You will also be putting that person in a difficult financial position.
💡 Quick Tip: Generally, the larger the personal loan, the bigger the risk for the lender — and the higher the interest rate. So one way to lower your interest rate is to try downsizing your loan amount.
Questions to Ask a Guarantor or Cosigner
One of the weightiest parts of deciding to use a cosigner or guarantor is having to ask someone to do you this favor, which is a big one. It’s important that there’s mutual trust in the relationship between the borrower and cosigner or guarantor, since their actions can have an impact on each other’s finances.
Some questions to ask your cosigner or guarantor before entering an agreement include:
• Do you have a good credit score and solid financial standing?
• Are you willing to take on this legal and financial responsibility?
• What will our long-term agreement be if I, as the primary borrower, fail to make repayments and force you into the legal obligation to do so?
Personal Loans That Allow You to Use a Cosigner or Guarantor
Not all lending institutions allow you to apply for a personal loan with a cosigner or a guarantor. Some only allow co-borrowers. If you aren’t able to qualify based on your own creditworthiness, you may consider asking the lender if they’ll allow a cosigner or guarantor.
Getting a personal loan with a cosigner or guarantor can make it much easier to qualify for a loan because, in the eyes of the lender, a second person agreeing to take on responsibility for the loan lessens the risk of lending to you.
The Takeaway
Guarantors and cosigners fulfill similar roles for a loan applicant, strengthening the application by taking on some level of financial responsibility for the loan.
A cosigner takes on responsibility for your payments right away, while a guarantor won’t get involved in the loan unless you end up missing several payments and are considered in loan default.
Either option can help you qualify for a personal loan with lower interest rates and better terms than you might be able to get on your own.
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