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What to know before cosigning a lease

I remember it like it was yesterday. I was 27, newly married, had just moved to a new city and was hit with a hard truth.

Because my husband and I decided to quit our jobs and move across the country, we weren’t able to secure a lease on a new apartment by ourselves. We had the foresight to find a sublet for the first two months, but we didn’t think about how difficult it would be to find something more permanent without full-time jobs. Sure, we had money in the bank, but landlords didn’t care. We were told to either present employment details or get a cosigner. Knowing it would take a little while to find jobs, we were left with one choice—to call my parents and ask them to cosign a year lease on an apartment.

This wasn’t something I ever expected to do, but I’m pretty sure most people that require a cosigner find themselves in similar situations. No one truly wants a cosigner on a lease, whether it be an apartment or a car. But, when you’re in a tricky situation, sometimes it’s your only choice.

Having my parents cosign a lease with us was definitely an awkward conversation to have. Even though we were both creditworthy and had never defaulted on any type of bill or credit card payment before, my parents knew that they were doing us a huge favor with some heavy consequences if we didn’t hold up our part of the bargain.

At the time, I didn’t realize how much of a risk they took to help us out. Knowing what I know now, I’m not sure if I would cosign a loan for a friend or family member if it were up to me.

Late payments can negatively affect your credit report

As a cosigner on a lease, you’re not only helping someone out, you’re taking on a ton of risk. For instance, if the lease holder doesn’t make their payments on time, it will negatively affect your credit report and credit score. Why is this important? Because if they don’t make their payments on time and you want to apply for credit yourself, you may not be approved because of their actions.

Default payments mean you’re on the hook to pay up

If the lease holder doesn’t just make late payments but also defaults on payments, guess where the lease provider is going to look to get their money? YOU! When you cosign a lease, you are agreeing to become 100 percent responsible for that lease. In other words, if your friend decides to skip town in their brand-new car and simultaneously stop paying their $300/month car lease payments, it’s on you to foot the bill.

Your debt-to-income ratio will increase

Another downside to cosigning a lease is it will increase your personal debt-to-income ratio. This can really hurt you if you want to take out a loan, apply for a mortgage, or get a lease yourself. You see, if your debt-to-income ratio is too high, making it look like you can’t afford to take on any new debt, you either won’t be approved or will be faced with higher interest rates. Creditors will think that you are a high-risk individual even if you’re not.

It’s not easy to get out of being a cosigner

If you have any second thoughts about being a cosigner after the ink has dried on the contract, unfortunately it’s too late to back out. Once you sign on the dotted line, you can’t get out of the contract until the lease has expired or if the lease holder decides to end the lease and make a new account solely under their name.

What to do instead of becoming a cosigner

I’ll be forever grateful to my parents for cosigning that apartment lease over five years ago, but like I said at the beginning, I’m not sure I could become a cosigner myself. It would of course depend on the who, what and where of the situation, but being a cosigner has little to no benefit with a whole lot of risk.

If you’ve been asked to cosign a lease, it’s important to know what your responsibilities are and the financial situation of the lease holder. If they can prove that they will be responsible with the lease and will not make late payments or default, then it’s up to you whether you want to agree and take on that risk.

If you’re not comfortable saying yes, there are a number of different ways you can still help them out. Educating them about how to improve their creditworthiness, or helping them seek out full-time employment are two simple ways you can still show your support without putting your neck on the line.

This information is provided for informational purposes, may not be applicable to all situations, and is not intended to provided legal, tax, or financial advice.  For specific advice about your unique circumstances, you may wish to consult a qualified professional.