The pandemic has placed many in a steep financial hole, and it’s been difficult to make ends meet. As such, for those seeking a new apartment, a landlord may ask for a designated cosigner before they consider renting out their space to a prospective tenant. While no one truly wants a cosigner on their lease, sometimes that’s the only option. Though for a cosigner, there is a lot at stake, and it’s important to be well informed before committing to cosigning a rental lease.
1. Late Payments Can Hurt Your Credit Score
While you may have good intentions of helping a friend or family member out by cosigning a lease, you’re also opening yourself up to a lot of risks. A primary example is a leaseholder failing to pay their rent on time. Even though it is the leaseholder who’s late on their payment, these actions can negatively impact the cosigner’s credit score. This may prevent you from applying for credit yourself or getting approval for loans.
2. Consigning a Rental Lease Increases Your Debt-to-Income Ratio
Your debt-to-income (DTI) ratio is the percentage of your income that’s dedicated toward paying your personal debts. Lenders use this figure to determine your ability to repay loans. When you cosign on a rental lease, it will increase your DTI, making it appear as if you’re taking on excessive debt. Creditors may see your DTI and consider you a high-risk individual, either denying you a loan or charging you a high interest rate.
3. It’s Difficult to Get Out of Being a Cosigner
If you’re having second thoughts after becoming a cosigner, you’re unfortunately out of luck. Once the ink has dried, you can’t back out of the contract until the lease has expired or the leaseholder decides to prematurely end the lease and create a new account solely under their name. If both parties agree, you can set up a meeting with the landlord to discuss your options, but there is no guarantee the property owner will allow the cosigner to be released from the contract.
Other Ways You Can Help Outside of Cosigning on a Lease
There is no issue with cosigning for a rental lease if the leaseholder can be trusted to pay their rent on time. However, should you have some reservations, there are other ways you can help out your friend or family member:
- Education: If their credit score is what’s preventing them from being the sole signer, teach them about methods to increase their credit score.
- Help in the Job Hunt: If they are currently without a job, help them find a full-time role that would suit them.
- Help Negotiate: Landlords typically require a cosigner because they’re concerned a tenant won’t be able to make a payment, but they may make an exception if the tenant agrees to a higher security deposit. In this case, if you have the means, help pay for the deposit.
You can also help them search for a new apartment. Privately owned apartments are less likely to run credit checks on their tenant applicants.
While cosigning a rental lease is down with good intentions, it can be risky. If you’re unwilling to cosign for a friend or family member, you can help in other ways. To begin, you can educate them on where to call to receive affordable rates on renters insurance. At TJ Woods Insurance, we recognize that the pandemic and the rising rental costs can place an enormous strain on tenants, so we want to help offer affordable renters insurance that provides great coverage. If you want more information on the policies we offer, contact us today.
