Looking for a Cosigner? Here's All That You Need to Know
What Is a Cosigner?
So what a cosigner is exactly to be put in simple terms is a guarantee for the loan repayment that you are taking in the instance where you become unable to pay back to loan or you stop making payments. Basically, when you apply for the loan the bank might not find you credible enough to grant you the loan hence they require a cosigner for some reassurance.
Hence for the same purpose, they expect a cosigner or somebody with a little more credibility or someone they can trust and depend on to promise that in the instance that you stop making payments they shall be responsible and take up the duty to pay back whatever loan amount that is left to pay.
A safe bet for the bank of sorts. When you get a cosigner to sign off on your loan the bank or lender becomes more confident and might end up giving you advantages or perks for the same.
For example, a parent might help you get approved for a mortgage loan by promising to make the payments if you fail to do so.
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How to Get Approved
If you seem to be having difficulty in having your loans approved due to the nature of your credit scores or maybe the loans are declined due to your lack of steady income then it might be possible to have the loans approved by having a cosigner who satisfies the same requirements that is one with a good credit score and steady income might help your loan get approved.
Why Do You Need a Cosigner?
A cosigner with a good credit score and steady income tends to make the loan application process more easy as the lenders look at loans with good cosigners as attractive applications. Also, the lenders tend to offer better terms on the loans when they are cosigned by someone with a good credit score and the other requirements for a good cosigner.
While you are applying for a loan the lenders end goal is to get the assurance of whether they will get money back from you or not and a good cosigner is a very good guarantee that they will get their money back.
To decide whether an applicant will return their money back in the terms agreed upon the lender will do an assessment which is based on the credit score which basically reflects your punctuality in payments in your previous transactions with such situations and the presence of a steady income on your end so as to make sure you will have the ability to continue making these payments further ahead.
Credit scores -
This is your history of taking loans and is one of the most important factors that will either make or break the chances of your application making or breaking it.
Lenders want assurance that you make regular and timely payments on the money that you borrow from them and also want proof for the same and they look at your credit scores as this is a reflection on your past transactions of such similar situations.
Similarly, they also want to know that if you have a loan currently, how are you paying them back, are you paying them back on time, do you keep missing payments or how often you miss making timely payments and more. If you seem to be in trouble already.
The lender might be reluctant to approve a new loan in your name. But if you have a good history of borrowing and repaying loans repeatedly, you should be having a credit score that is good and this will definitely increase your chances of getting approved.
This is the next criteria that the lenders look into that is the prospect of your ability to pay back the loan amount in the monthly repayment amounts that you would eventually be required to pay.
To do so the lenders have a look at your income and whether it is sufficient to repay the loans you currently have and also to be able to repay the new loan alongside the ones you already have in the event they approve of it.
This is calculated by a method called the debt-to-income ratio which is a comparison of the monthly income that goes towards repaying all your debt that you currently are repaying.
The lesser this number the better it turns out to be for the chances of approval of your loan.
Any other factors -
The two most important factors for loan approval are the credit scores you currently have and your income which we have discussed above.
But other details some lenders might be keen in differs from lender to lender. some lenders might be interested more in your loans that you processed for a new car rather than an old used car, whereas some other lenders might be considering how you get loans for single-family homes rather than your investment properties.
If it is turning out to be very difficult for getting your loan approved. It is probably wise for you to seek a cosigner and also if you lender suggests you to get a cosigner it might improve your chances of getting your loan approved as this is the lender's suggestion that you do not currently meet the criteria that the lender is looking for.
If you think having a cosigner will help improve your chances then just having their information added to their application will improve your chances of getting your application approved.
Finding a Cosigner
Wondering who you can cosign on your loan? Well, you can begin with family, friends, and anybody you think might be willing to help you in the process of getting your loan. Since this involves the risk of taking on a payment in the situation where you stop paying. You will need to find people who you can count on and people who have the belief in your and also how hard you work towards your goals and to pay off the loans.
A perfect cosigner would be someone who is able to take care of some of your loan on the side with the extra income they are making. They are usually experienced with having taken and paid back many loans over the course of their lives.
Family members being the best people as they would know you very well compared to other people, but make sure they are pretty solid themselves and don't have to trouble themselves with your loan in any situation.
There would be no benefit in the situation where you ask someone with bad credit or low/no income to cosign for you. A strong cosigner credit score will improve your application drastically, and a more than enough income will provide for a decent safety buffer if anything unexpected happens in your life.
The first instance your parents might want to help you build some good credit scores for yourself, Also some of your friends might want to give you a hand, or any person that supports you may be believing in your ability to pay off the loan in the case it gets approved.
It shouldn't be surprising in the instance where you do not find a single person ready to cosign for you as this turns out to be quite risky for them. Even in the event that a cosigner wants to help you get your loan approval and help you, they might not be willing to put their future, their families future and their finances on the line for the same.
When you do find a cosigner, it becomes your responsibility. A favor that is huge is being done for you. Something that wasn't possible for you to do on your own is now within reach because of someone who is trusting you with their future and their finances. So make sure you work hard and make sacrifices, work more, track your expenses. Get the loan paid off as soon as possible and keep it going until it is over.
How to Get Somebody to Cosign for You
The prep work -
You must come off confident with the details to convince them that you have the ability to pay off the loan on your own and the cosigning is just a formality so as to get the loan sanctioned for you.
Since it is a big deal people will appreciate the effort you put into pitching the idea of cosigning for you in a more professional way.
Try to think of it as your sales perspective. Mention that you have things worked out, show it to them, have it all written down or at least on your mind and speak it out when you are explaining things to them.
Have contingency plans for any situations that they might come up with so that they know you've prepared well knowing what you are getting the two of you into.
Be truthful -
The last thing you want is for your cosigner to find out after or before cosigning that you have bad finances and anything of the similar sort so don't shy away from letting them know about the details and how you plan on going about fixing them.
Even though you have the right to decide what sort of a relationship you have with your cosigner let them in on the details of your job and your income so that they know you possess the ability to repay your loans on time and they don't have to worry about that much and keep an eye on your or have a watch over your back.
Get an understanding -
Understanding your loan and how it works, going through the terms, the payments to be made monthly, the eventual interest costs that you will pay over the duration of the loan and any other terms and conditions mentioned in the loan application.
Some lenders have the option where you may release the cosigner after a certain number of timely payments, you may put these details forward to have the cosigner be more inclined to cosign for you too.
Risks and how to deal with them -
Understand that taking any loan is big risk and there are additional risks that come along with that as well, for example your credit score isn't the only one that is on the line if the payments don't go on time with your loan, the cosigner's credit score can drop if you do not make monthly and timely payments,
So have them understand these risks, that in the event that anything happens you have a fairly good idea on how to deal with it.
They may not be aware of the problems that you might face through the loan period.
If You Can’t Find a Cosigner
So what if you aren't able to find a cosigner no matter how hard or where you look for one or aren't able to have someone cosign for you. Well, you have other options such as follows -
Credit gets you respect -
Build credit while you are waiting to borrow money. If it is possible for you to wait to borrow money for a while then wait for it but also build your credit at that time. Get small loans and pay them off. Usually, this leads to the credit score going up as you are diligent in paying off your loans. repeat this for a while. You may even try cash secured loans which usually increases your chances of getting approved.
Get collateral that you can Pledge -
As long as you have something of value to pledge, even if it might be a risky bet, Do it, but also keep in mind in case things go for the worse. You might lose your asset.
Lenders expect something that gives them the assurance that you won't take the loan and disappear. So when they have something that you value then they know in any such situation they can take your asset and sell it to recover some of their money.
For Example, usually many people pledge their houses or their cars which may end up in foreclosure and or even worse have their vehicle given away leaving them unable to go to work and earn an income.
Take less give more -
You need to learn to borrow less, even though it might not be the first thing that's on your mind and you might want to consider taking some extra just in case but you need to learn to take just enough to suffice your needs and not your wants. This also plays out in this way.
The smaller the loan the smaller the payments and the smaller the payments the smaller the impact on your income statement, the smaller the impact than the less you will fret about and have to deal with when the payments have to be made.
What Risks Does a Cosigner Take?
The act of cosigning for someone can be considered in some ways to be a very generous way to help someone without having to lose much. Although this includes the risks that come along with that cosigning. It is important that you and the person who cosigns for you to understand the risks that both of you are taking for the sake of the loan. If the stakes are cleared to both of you. You should be able to come to an understanding of what to do.
Giving back what you borrowed -
So Loan repayments are hectic as they usually have a variety of ways to begin. A cosigner is usually completely responsible for the loan as much as you are.
In the situation where the original borrower fails to pay, the cosigner is the next person who has to take up the job of paying back the loan.
Regardless of how well intentioned you might be at repaying your loans in the eventuality that something happens, that renders you unable to repay your loans. The cosigner is fully responsible and obligated to pay back your loan unless say your loan is forgiven in the event of your death.
Limitations of cosigning for someone -
Since the cosigner becomes responsible for your loan in the eventuality that you become unable to pay for the loan.
When the cosigner wants to borrow or take up a loan. Their lender will look into their credit history and see that they might have another loan to pay off in maybe some instance and this can lead to the lender either rejecting or accepting their loan so be careful because you might take away their ability to get a loan.
Credit damage -
This usually happens when the cosigner who accepts to pay the loan payments in the instance where the borrower is unable to but does not make the payments.
Their credit will get hit just the way it would have in the situation as if they had borrowed the loan.
This can also be the case if the borrower without the knowledge of the cosigner misses a few payments.
The credit bureaus will make a note of this in the future and also the cosigner's credit score which was good before the events will drop sharply and will stay that way until it is fixed.
Do you think you should pay for a cosigner?
There are many ways to get someone to sign for you as a cosigner this also includes some individuals or services that offer to assign or get you a cosigner if you pay them for it. There usually is a small fee for getting a cosigner to sign for you.
But be aware of the risk to reward trade-off will be sensible for the cosigner. You will only pay a small fee and the cosigner is responsible for 100% of your loan. Understand how that makes sense to anyone is your responsibility.
Also, this usually ends up taking you to sites such as craigslist where you are promised a cosigner but may end up getting a con artist.
Be careful with those that ask for your bank details such as account number and more, and also beware of those demanding an upfront payment with no way for you to ensure that they go through with the deal.
What is a cosigner FAQs
How long do you need a cosigner for?
Although it might require that you have a credit score that is high enough for you to qualify on your own. if you have made on-time payments for about 6-12 months and you can clearly document that you have enough income to continue doing so for the considerable future, it should be possible for you to refinance a loan without a cosigner.
How good of credit does a cosigner need?
A good credit rating that is usually taken into consideration as compensation for you would have to be anywhere above 700. Usually, a cosigner is required to give it in writing that he pledges and guarantees to pay the loan in the instance where the borrower is unable to do the same.
Why do I need a cosigner?
The addition of a cosigner usually helps you in getting the loan because this adds a second income stream for the repayment of the loan and also guarantees the repayment through the same.
It also adds a second set of credit score usually cosigners are having a higher credit score than the borrower and this helps to assure the repayment and can also avail some benefits that the lender might be inclined to get for the reason of getting a good assurance of repayment.
Usually, you can find someone with good credit as the person who has some good experience borrowing and repaying loans regularly without any trouble with being on time with their payments and more.
What is the role of a cosigner?
The primary role of a cosigner is to guarantee that the person whom they are cosigning for will repay the debt/loan that they have received on time and in the end completely. They are obligated by written contract to repay the loan in case the person whom they cosigned for fails to pay.
As a cosigner, it is your responsibility to pay the debt of the person for whom you cosigned in the event that they are unable to do the same.
How will Cosigning affect my credit score?
Cosigning on a loan doesn't usually hurt your credit unless one of the following occurs -
Irregular payments by the borrower which causes the loan to go into delinquency or even default which can hurt your credit score majorly.
Regular payments but not on time or low payments not equaling the required monthly payments.
So the issue with cosigning a loan is that when you cosign for a loan it shows up on your credit report as well and due to this fact when you request for a new loan elsewhere the lender has a close look at your credit report and may decline your application for a loan as you might have to pay for this loan in the future circumstances that the borrower does not make the payments. Hence your ability to get a new loan might be hampered.
Can Cosigning improve your credit?
Yes, Cosigning can improve your credit but only when the loan has been repaid regularly on time as this will show up on both your credit reports as diligence and as a result will help the two of you build a good credit score and history.
How can a cosigner get out of a loan?
It might be difficult to get oneself out of a loan as a cosigner if the borrower is unable to make regular timely monthly payments as this leads to the lender not believing in the ability of the borrower to make it all the way to the complete repayment of the loan. So keep making payments until the point where the other borrower is able to get the loan under his name either by a cosigner release or by refinancing the loan after showing that he has made sufficient timely payments and then is able to continue making these payments regularly henceforth with a good income statement.
Does a cosigner have to be present?
This varies from lender to lender as some would require the cosigner's presence at the closing of the loan. some other lenders may just allow the cosigner to fax over the documents to them. This sometimes would require a notary to verify by notarizing the signature of the cosigner.
Can you be too old to cosign a loan?
How old can one be to co-sign on a loan although a valid question is actually very simply put? Anyone legally old enough to have authority. So basically anybody over the age of 18 can cosign for a loan and on the other end there is no mention of a limit for the age but there is a mention that in the event of the cosigner's death the loan must be repaid in full. So make sure to get a cosigner under the age of 65 with preferably good health.