Co-Signer

Some creditors will accept a co-signer with good credit to serve as a guarantor for a person who has a low credit score. The co-signer is essentially agreeing to reimburse the amount owed if the loan applicant fails to pay their debt.

Having bad credit or no credit at all should never discourage borrowers to get a loan from banks. There are various solutions to this problem, and getting a co-signer is one of the best ways to qualify for the loan.

The idea behind getting a co-signer is to find someone who has a good credit history. This could be a person that the borrower trusts and is willing to assume part of the risk for acquiring debt. The chances of getting approved for a loan increases with an eligible co-signer.


Advantages Of Getting A Co-Signer

  • It allows borrowers to build credit. Getting approved for a loan through a co-signer will enable a borrower to reestablish creditworthiness. This is especially true if monthly repayments are paid for on time.
  • Increase in disposable income. Aside from credit scores, banks look at the borrower’s net disposable income before approving a loan application. Getting a co-signer increases this income figure, which often leads to approval from a financial institution.
  • Can lead to lower interest rates. In some cases, a borrower may be approved for a loan but with a high interest rate. Having a co-signer with good credit can lower the interest rate offered by the lender.

Disadvantages Of Having A Co-Signer

  • The loan is a riskier proposition for the co-signer. While the borrower receives majority of the benefits, the co-signer is the one accepting most of the risks. If the primary borrower defaults, the bank will go after the co-signer.
  • Dependence on others. A borrower may become indebted to a co-signer. This may not be ideal for those who prefer independence regarding money matters. Loan defaults can lead to damaged relationships and even court settlements.

Who Should Get A Co-Signer?

Those who have very limited means and capability to secure loans can opt for a co-signer. Some examples of such individuals are students (for student loans), immigrants, non-citizens, and those who don’t have formal employment.

What To Consider When Getting A Co-Signer

Make sure you get a co-signer who understands the risks of helping you get a loan. It could be a relative, sponsor, parent or close friend with good financial standing. Avoid getting co-signed loans for luxury purchases or consumer debt. Only apply for loan amounts you’re comfortable to pay off. This will avoid unnecessary hassle and trouble for your co-signer.

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