Co-signing a lease for an apartment is an important decision because the potential negative impact on the co-signer can be quite high. When a person co-signs a lease, the co-signer is agreeing to pay the rent for an apartment in case the actual renter stops paying or damages the apartment. A co-signer is betting on the renter's responsibility and financial security. The pros and cons of this situation, then, depend on whether or not the renter is actually responsible and whether or not this situation leads to legal or financial trouble for the co-signer.
Commonly, people are advised against co-signing a lease because of all the negative consequences that can arise if the renter does not fulfill his or her responsibilities. The co-signer is responsible for all of the rent for the apartment, which can be an immense financial burden. One major problem that can arise is when more than one person shares the apartment but only one of those people has a co-signer. In this case, even though a person may have thought that he or she was only co-signing for one person, he or she may have effectively co-signed for both because the co-signer is responsible for the entire rent.
In some situations, co-signing a lease may also lead to reduced access to credit for the co-signer, negative credit history in the event of unpaid debts, or even legal battles over the apartment. On a social level, co-signing a lease can lead to interpersonal strife between the co-signer and the renter. While co-signing on a car can leave a co-signer some recourse, such as repossessing the car, an apartment does not always lend itself to this type of action.
Even given all these negative possibilities, there are still some positive aspects to co-signing a lease. In many cases, a person may not be able to rent an apartment without a co-signer, particularly when the renter is young and lacks a credit history. A parent might benefit from co-signing on a child's apartment because doing so promotes independence and helps the child transition into adulthood. Co-signing a lease provides very few financial benefits, but the social benefits can be great when all payments are made according to plan.
The pros and cons of co-signing a lease depend on the specific situation at hand. For trustworthy renters, there may be no problems associated with to co-signing a lease, but for delinquent or irresponsible tenants, the problems can be quite devastating. When weighing the pros and cons of co-signing, the co-signer must weigh the renter's character against his potential risk.
Does Co Signing a Lease Affect Your Credit?
One of the reasons that you may consider co-signing a lease in the first place is to help someone who does not have the right income or credit score qualify for the lease on their own. Oftentimes, parents or older family members do this for their children or younger family members to help them get into a home while they work on building up their credit scores. Before making this decision, however, it is important to understand the financial obligations and risks involved.
The good news for anyone looking to co-sign a lease is that it usually does not harm the co-signer's credit score. This is because a lease agreement does not actually involve a loan or use of credit at all.
Unless a renter is using a program specifically designed to help account rent into their credit score, rent payments will generally never be factored into the scores of anyone on the lease. This includes the co-signer as well as anyone living in the apartment. Unfortunately, this also means that a co-signer will not see any improvement in their credit score, even if every payment is made on time.
What Is a Co-signer on a Lease Responsible For?
Just because a co-signer's credit isn't necessarily at risk when they help with a lease doesn't mean that they are free of financial responsibility. Since the reason they are being asked to sign in the first place is that the people looking to rent do not have the income or credit score to do it on their own, what the co-signer is essentially doing is giving the landlord assurance that if the renters fail to pay, the co-signer will cover the rent. This means that there needs to be a lot of trust between the co-signer and renters. It is a good idea to have a conversation with the renters before co-signing a lease to make sure that everyone is on the same page about how the rent is going to be paid.
Do Co Signers Need to Sign the Lease?
A co-signer is not always necessary for signing a lease. The only reason a co-signer is needed is when the renters do not meet the requirements of the landlord to sign on their own. There are many reasons a potential landlord may decide this is the case, and getting approved as a renter is often a very different experience from case to case.
Some landlords greatly emphasize the credit scores of the potential renters during the approval process. This can make it difficult for people with low scores to get into an apartment, even if they meet the income requirements to pay the rent. Since young adults often are in the process of building up their credit for the first time, this can make it extremely difficult to find a place to live. In these cases, a co-signer can be of great assistance.
Other landlords may not care what a renter's credit score is at all. They may take into consideration other factors, such as how much money the potential renter makes. In these cases, even a person with a low credit score can get into an apartment without needing a co-signer.
Since getting into rental properties can be competitive, having a co-signer with great credit can help people get approved and find their next home more quickly. This can be important for people who need to move out quickly, such as students attending universities, or anyone moving somewhere for a new job.
Other Roles for a Cosigner
It is important to remember that the discussion above is relevant to co-signing a lease only. There are other types of co-signing that can have a greater impact on the co-signer's credit should payments be missed.
A co-signer can help someone to get a loan that they would not otherwise qualify for. This could be a mortgage for a home, a car loan, a loan to start a business, or similar. Unlike a lease, which does not jeopardize the co-signer's credit score, loans may harm the credit scores of all parties involved if payments are missed.
While making payments on time regularly can help the primary individual on the loan build their credit, it is rare for co-signers to see their credit score increase. This means that the only benefit to co-signing is to help the person trying to get the loan. This makes sense for some people looking to help their families, but it is important that you only co-sign with people you know well and can trust to make their payments on time.