Co-Signer


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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