Guarantor vs Cosigner: Key Differences Explained
Written by
Andrew Lisa
Edited by
Emily Gadd
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Both guarantors and cosigners assume legal liability for someone else’s debt, but different actions trigger that liability in each case and each has different rights and responsibilities.
Whether you’re a lender or landlord who requires a cosigner or guarantor to shore up a shaky applicant’s credentials, or you’re a borrower or a tenant in search of one or the other to help secure a loan or lease, it’s essential to know the key differences between the two.
| Guarantor | Cosigner | |
|---|---|---|
| When legal liability begins | Assumes responsibility only when the borrower enters full default. | Responsible for every payment, whether the borrower makes them or not, for the duration of the arrangement. |
| Impact on credit | Does not impact your credit unless the borrower defaults, at which point your report is updated to reflect the borrower’s negative payment history.   | Shows up on your credit report immediately and records all activity as if you were the primary borrower, regardless of whether payments are late or in good standing. |
| Legal right to assets, like the vehicle in an auto loan? | No | No |
What Is a Guarantor and How Do They Work?
Guarantors help third parties secure credit, loans or leases by guaranteeing they’ll pay what’s owed if the borrower goes into default.Â
Virtually anyone can become a guarantor as long as they’re legally allowed to sign a contract and have good credit and a strong overall financial profile, but not everyone should. It’s an enormous commitment with potentially drastic consequences.
Because of the responsibility of a guarantor, they are often family members or close friends of a borrower who needs their help because they:
- Are a young adult or recent immigrant with no established credit history
- Have bad credit
- Earn a low salary
- Are just starting a new job
Both Parties Risk Their Credit, Financial Futures and Relationship
There are good reasons why landlords and lenders are leery of people in any of these categories, and both parties must think realistically about whether their relationship can withstand the potential consequences.
If the borrower defaults or stops paying rent, the guarantor becomes legally obligated to assume the debt and make the payments — and since their guarantee impacted the approval decision, there’s no getting out of it in most cases.
Who Not To Approach as a Potential Guarantor
There’s not much in it for a guarantor other than the satisfaction of helping a worthy and grateful but underqualified loved one get the credit, loan or apartment that could launch their new financial life or help them rebuild their old one.
Either way, it’s likely a close relationship that could be jeopardized if the borrower defaults, so avoid potential candidates with any of the following traits, even if they’re willing to help:Â
- New parents or anyone with significant and uncertain upcoming financial obligations
- Someone you’re not fully comfortable being open and honest with about the details of your financial life
- Someone in advanced age or suffering from acute medical conditions
- Someone who does not fully understand what the role of a guarantor entails or the potential risks they’re assuming
What Is a Cosigner and How Do They Work?
The rules about who typically needs a guarantor and why, who not to take on as a guarantor and what both parties risk are identical for cosigners, but there are also some crucial differences.
Like guarantors, cosigners help third parties — usually friends or family members — secure credit, loans or housing by agreeing to pay if the borrower can’t or won’t. But unlike guarantors, who are held liable only if the borrower goes into full default, cosigners are responsible for each and every payment.
Therefore, the loan is reflected on their credit report from the beginning, and each payment or nonpayment is reported just as if they were the primary borrower.
The Bottom Line
Both cosigners and guarantors help underqualified borrowers get loans, credit or rental leases by agreeing to assume financial responsibility if the primary borrower can’t or doesn’t keep up with payments.
However, guarantors are on the hook only after the borrower fully defaults, while cosigners are responsible for all payments and have all payments — made or missed — recorded on their credit reports from the outset.
FAQ
Here are the answers to some of the most frequently asked questions about guarantors and cosigners.- What’s the difference between a guarantor and a co-applicant?
- The primary difference is that guarantors are responsible for paying the landlord or lender only once the primary borrower goes into full default, while cosigners are responsible for every missed payment and have each month’s payment status recorded on their credit reports.
- Can a guarantor become a cosigner?
- No, a person cannot be a guarantor and a cosigner on the same loan or lease at the same time.
- Does being a cosigner affect your credit?
- Yes. All payments are reported to the credit bureaus, whether they're made or missed, just like the primary borrower.
- Who is typically a guarantor or cosigner?
- Underqualified borrowers and tenants typically turn to family members, friends or other loved ones with better credit and/or more income to serve as co-signers or guarantors for apartments or loans they otherwise couldn’t secure.
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- Cornell Law School "Guarantor"
