For many people, having a place to live and a car to drive are basic necessities. However, when you can’t qualify to lease a home or car because of poor or non-existent credit, you may need to ask friends or family to back up your applications as cosigners. This commitment is laden with emotional and financial repercussions, many of which may not be apparent initially and must be considered before signing any contracts.
When applying to become a tenant of a rental property, the landlord may not approve your application if you have little or no credit history, or if you have a poor credit history. Landlords can view your credit report to see previous evictions and any reports of delinquent rent payments made by previous landlords. They can also view your credit score. The landlord may want reassurance that you’ll be a responsible renter this time by asking for a larger deposit or having your lease cosigned by a friend or family member. A cosigner agrees to pay your rent in the event that you fail to do so.
Leasing a car is similar to leasing a rental property, because the dealers want to check your credit history to make sure you can and will pay on time each month. If you don’t qualify on your own, you may ask someone you know who has good credit to cosign for you. If you cannot make the payments, the cosigner will have to take over payments for you.
A cosigner agrees to take on equal responsibility for the lease, even if he won’t benefit from use of the rental property or car. This is a big financial responsibility, and it can impact the cosigner’s credit. Bankrate’s Don Taylor suggests that cosigners of housing rentals ensure that the contract isn’t a continuing agreement, which means that the contract must be signed anew once the lease is up for renewal or if a roommate moves in. Before signing any contracts, the renter should pay to have the cosigner’s lawyer review the agreement.
Even if the renter makes good on all his payments, the cosigner may feel a sense of resentment and may question the renter’s actions. In an MSN Money Central article, psychologist Leslie Lezia Brenner points out that the cosigner may judge the renter’s major purchases down the road, wondering how he can afford vacations if he can’t manage to repair his credit. Because the decision to cosign may be emotionally stressful, consider whether your relationship will endure the money matters.
If you believe you may need a cosigner to obtain a lease, take the time to fix any errors on your credit report before searching for a home rental or a car. Also, if you have a good rental history, ask your previous landlords for letters of recommendation. Begin saving for a larger downpayment. These actions may help you avoid the need for a cosigner.
Joy Uyeno has been writing about travel, food, fashion, culture and finance since 2005. For three years she wrote a column for the "Honolulu Star-Bulletin" aimed at young and first-time travelers. Her writing has appeared in several local and national publications, including the 2008 anthology "Honolulu Stories." She holds a Master of Arts in writing and publishing from Emerson College.