Co-signing a loan may make the borrower more eligible, but it could also be detrimental to your credit and financial situation. If your credit score exceeds that of your partner, child, or friend, you might be asked to co-sign a loan. But even something that seems honorable, like helping someone pay for a new house or college tuition, can have unexpected results.
In this article, we will see what a Co-signer loan is, its benefits, and all the information you possibly need. You will also learn how Money-Wise can help you with Co-signer loans. Keep reading to know more in detail about the same!
What Is A Cosigner?
A co-signer is someone who adds their name to the loan application of the primary borrower, indicating their willingness to be held accountable for the loan balance and any additional organization fee in the event the borrower cannot pay.
Most people seek or want a co-signer because they cannot meet the loan requirements independently. If you have a solid financial background, co-signing for someone who has a weaker credit history can increase their chances of approval or obtaining a lower interest rate.
A co-signed loan differs from a joint loan in that both borrowers have equal access to the funds, even though they may be responsible for repayment.
Anyone who qualifies can act as a co-signer, and your lender will decide if they do or not.
However, a co-signer will typically be someone you can rely on financially, such as someone with better credit or a more steady income than you, as you will need to rely on this person if you cannot make your loan payments on your own.
Pros & Cons Of Cosigning A Loan
You become incredibly susceptible when you co-sign for someone else’s loan. Here are the advantages and disadvantages to consider, as well as tips on safeguarding your finances and your relationship, should you decide to co-sign.
The advantages of co-signing a loan are numerous. The benefit of co-signing a loan for someone is obvious: you can help them qualify for financial aid for college, a credit card, or other financial products they couldn’t otherwise obtain, or you can get them a better interest rate to save them money on their loan.
Having a co-signer with a strong credit score and a long credit history is helpful for people who are just starting with credit or rebuilding their finances. Before applying, make sure the lender accepts co-signers. Not all online personal loan lenders do.
- The entire loan balance is your responsibility.
Co-signing a loan is more than just offering your good credit history to someone else in need. They promise to make up the difference if they cannot pay their debts in full, including late fees and collection costs. Make sure you can afford the loan payments if the primary borrower cannot before agreeing to co-sign.
- Your credit is in jeopardy.
When you co-sign a loan, your credit reports and the borrower’s credit reports include the loan and the borrower’s payment history.
According to Bruce McClary, a spokesman for the National Foundation for Credit Counseling, you need to take care of your credit score in the short term. He claims that the hard credit inquiry the lender made before approving the loan and the growth in your overall debt load could lower your