Who Can Cosign Your Loan?
Taking out a loan is a big financial decision with a lot of commitment. It’s especially difficult if you have a poor credit score. If a lender doesn’t find you creditworthy, they may not let you sign without someone else. So, who can cosign your loan and is it a good idea?
What Is A Cosigner?
Sometimes obtaining a loan on your own is challenging due to a low credit score or insufficient credit history. When you try to take a loan out for a car, home, education, or anything else, you owe the amount you are borrowing from the lender plus interest. If the lender doesn’t find you creditworthy, you can try adding a cosigner. A cosigner is someone who is considered creditworthy and is an additional safety net to ensure lenders get their money back. You can ask family, friends, or even business partners to cosign your loan, improving your chances of approval and securing better terms.
Who Can Cosign Your Loan?
Just about anyone can cosign your loan. When choosing a cosigner, remember that if you fail to make your payments, the loan is their responsibility and will hurt their credit score. So, choose someone who understands your financial landscape. Examples are:
- Family. Parents, siblings, or other close relatives are commonly chosen as cosigners since they usually have an idea of what your finances and goals are. They are usually the people you can rely on to support you in your loan endeavors.
- Friends. Sometimes our friends are our biggest supporters, even financially.
- Significant others. Couples that live together often cosign loans for each other since they often have the same goals with the loans, like purchasing a house or car.
- Colleagues. In some cases, an employer or colleague may cosign a loan for you to support your future goals, like student loans for continuing education or business loans to start your own company.
Cosigner Requirements
While willingness to help is the first step, potential cosigners must also meet certain requirements set by lenders. The right cosigner will have the following:
- Good or excellent credit – usually above 700 to demonstrate their ability to manage money responsibly.
- A stable income – they need to be able to cover the payments if the primary borrower cannot.
- Must be 18 or older – to enter a legally binding contract, they need to be of legal age.
Risks & Considerations
Choosing to take out a loan is a serious commitment. By adding a cosigner, you are adding another person and layer to the equation. So, you should know the loan appears on both the borrower’s and cosigner’s credit reports, affecting your credit scores and borrowing capacity. If the primary borrower defaults, the cosigner is legally obligated to repay the loan.
This can put a strain on relationships, especially if the primary borrower is missing payments. Choosing a cosigner involves careful consideration of both financial and personal factors. While a cosigner increases your chance of loan approval and better terms, it is crucial to discuss expectations, responsibilities, and potential risks openly.
Whether it’s a family member, friend, or partner, a reliable cosigner can be instrumental in achieving your financial goal while building mutual trust and support. Always handle these arrangements with transparency and responsibility to protect financial and personal relationships.