What is a rental guarantor and do you need one?

Are you moving out and becoming a renter for the first time?

Are you unsure of what you may need to know, or the insider tips and tricks to renting in Australia? Don’t worry, we’ve got you covered! Here at PropertyMe, we’ve compiled our favourite tips for first-time renters. To start, we are covering what is a rental guarantor, who is eligible for this and its potential impacts

What is a rental guarantor?

To start, a rental guarantor is a person or company who signs a contract to be liable to cover the rental payments and any other lease obligations if the tenant is unable to do so.

Guarantors essentially act as a backup for the tenant to ensure that the rental obligations are met. This can help first-time renters who may not have a strong credit history, have no rental history or don’t have a steady income.

Having a rental guarantor is not a legal obligation, and your landlord cannot require you to have a rental guarantor on any application around Australia, although it can make an application stronger if there is someone who is willing to be a rental guarantor.

What are the responsibilities of a rental guarantor?

There are a few different responsibilities of a rental guarantor if you decide to embark on this journey of acquiring one.

The responsibility of a rental guarantor can also vary depending on which state you’re renting in. The most common responsibilities that fall underneath the banner of being a rental guarantor include:

1. Paying outstanding rent: A guarantor is responsible for ensuring any outstanding rent has been paid back and is legally responsible for any unpaid bills.
2. Covering property damage If any damage was to occur on the property that was caused by the tenant during their residency, the guarantor is responsible for covering any cost to repair the property.
3. Contractual obligations: When becoming a rental guarantor, they then become responsible for any contractual obligations that are not met by the renter.

Depending on the contract and state you are living in, rental guarantors’ responsibilities vary dramatically. We highly recommend checking with your agent and looking at the Residential Tenancies Act to ensure you have a full understanding of the responsibilities of a rental guarantor.

Who can be a renter guarantor (qualifications)

There are two different types of rental guarantors, the first is a personal guarantor. These are often people the tenant knows, whether it’s a family member, friend or employer. The commitment of a personal guarantor is usually based on their trusted relationship with the tenant

 The second type of rental guarantor is an institutional guarantor. These are organisations or companies that offer a guarantor service, usually for a fee. They bring a higher level of financial assurance than a personal guarantor and commitment is often based around business connections.

To be a guarantor, there are a few qualifications that must be met This is more relevant for a personal guarantor rather than an institutional guarantor.

Credit history: Having a good credit history indicates financial responsibility and suggests the guarantor will uphold their legal obligations. Agents and Landlords will often run a credit score check on any potential rental guarantor.

Stable income: Anyone you are considering having as a rental guarantor should have a stable income, and it’s often required to be higher than the rent amount to ensure that if needed the costs will be covered.

No significant debt: A rental guarantor with no significant debt or obligations is recommended as it is seen as being more financially stable and reliable.

There are many positives to having a rental guarantor as a first-time tenant — it can make applications stronger and can help tenants negotiate better lease agreement terms.

While there are many positives, being a rental guarantor does not come without its risks, taking on the legal and financial obligation for someone else opens liability that could require legal action.

All parties must understand the requirements and responsibilities of their role when it comes to renting and rental guarantors. We recommend checking your state’s Residential Tenancies Act to find out more about what your state’s requirements for being a rental guarantor are.