Are you confused about the difference between a guarantor and a cosigner? You’re not alone! While these two terms are often used interchangeably, they actually have distinct meanings. In this post, we’ll break down the difference between a guarantor and a cosigner, and explain when you might use one over the other.
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First, let’s define our terms. A guarantor is someone who agrees to take responsibility for a loan or other financial obligation if the borrower is unable to make the payments. Essentially, the guarantor is vouching for the borrower and promising to pay back the debt if the borrower defaults.
A cosigner, on the other hand, is someone who signs onto a loan or other financial obligation with the borrower, agreeing to share responsibility for the debt. Unlike a guarantor, a cosigner is not just promising to pay back the debt in the event of a default – they are legally obligated to make payments on the loan, just like the borrower.
Guarantor vs Cosigner
So what are the main differences between a guarantor and a cosigner? Here are a few key distinctions to keep in mind:
- Level of Responsibility: As we mentioned above, a guarantor is only responsible for the debt if the borrower defaults. A cosigner, on the other hand, is responsible for the debt from the outset. This means that if the borrower misses a payment or defaults, the cosigner will be on the hook for the entire balance.
- Credit Score Impact: Both a guarantor and a cosigner can have an impact on your credit score but in different ways. If you default on a loan with a guarantor, their credit score will be negatively affected. However, if you default on a loan with a cosigner, both your credit score and the cosigner’s credit score will be impacted.
- Availability: Guarantors are more commonly used for things like apartment rentals or utility bills, while cosigners are often used for loans like car loans or student loans. This is because guarantors are typically easier to find – you might ask a parent or a close friend to be your guarantor, while finding someone who is willing and able to cosign a loan can be more challenging.
When do you use a Guarantor vs Cosigner?
So when might you use a guarantor versus a cosigner? Generally speaking, a guarantor is a good option when you need someone to vouch for your reliability, but you are confident that you’ll be able to make the payments on your own. For example, if you’re a recent college graduate with limited credit history, you might need a guarantor to help you secure an apartment lease. However, if you’re applying for a loan and you’re not sure if you’ll be able to make the payments on your own, a cosigner might be a better choice.
It’s worth noting that not all lenders or landlords will accept guarantors or cosigners, so it’s important to check with them before making any arrangements. Additionally, both guarantors and cosigners should be aware of the risks involved in taking on these roles – if the borrower defaults, they could be on the hook for a significant amount of money.
Summary
In summary, while guarantors and cosigners are often used interchangeably, they actually have different meanings and different levels of responsibility. If you’re confident that you can make payments on your own but need someone to vouch for you, a guarantor might be a good option. If you’re not sure if you can make the payments on your own, a cosigner might be a better choice. Just remember to do your research and make sure everyone involved understands the risks and responsibilities.
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