How to Find a Co-Signer for a Personal Loan – If you cannot qualify for a personal loan because your credit score needs some work, a co-signer may be able to help you out. A co-signer is an individual who agrees to pay back a loan if the borrower is unable to do so. The right individual will have to be financially stable, have an excellent score, and be someone the borrower can trust.
Whether you want to apply for a loan, the blog will help you fully understand a cosigner’s role. And everything you need to find the right co-signer for a successful personal loan approval.
What is a Co-Signer?
A co-signer is an individual who signs an agreement to help repay a loan if the main borrower is unable to do so or defaults in payments. When he or she agrees on the co-signing, it will show up on their credit report and also the credit report of the borrower.
If the borrower makes payments on time, you will get lots of advantages from those marks on your credit too. But if they miss payments or just stop paying, you will have to repay the loan. If you don’t, the lender can charge you to court for the repayment of the loan.
Lenders often mandate a co-signer if the main borrower has very bad credit, no credit, or does not have enough income. This is common for young individuals who are just starting out and don’t have much credit history. Thus, always keep in mind that not all lenders accept co-signers. So if you think you need help to qualify for personal loans, it is advisable you check with the lender before applying.
When Do I Need a Co-Signer?
Just like I have mentioned above, you may need this individual if you need to qualify for a personal loan that you may not be able to qualify for. Some of the cases it can make sense are if you have bad credit, don’t have enough income, are still young, or don’t have credit history in your name.
The best part is that you may even be offered lower interest if you and the cosigner get approved. But to make this work, there are some things you will need to put in place.
- The cosigner is doing a lot for the borrower, so there will have to be trust between them.
- The cosigner needs to have an excellent credit score so they can get approved to co-sign on the personal loan.
- If the main borrower is unable to pay the loan, the co-signer should be able to continue the payment comfortably.
Pros and Cons of Co-signer for Personal Loans
Just so you know, co-signing a loan can be quite advantageous for the two parties. However, it can also result in destroyed credit, financial hardships, and broken relationships between the two parties. Here are the pros and cons.
Pros
- If your cosigner has good to excellent credit, you are more likely to get approved for the personal loan.
- The borrower may be offered low interest rates and save more money.
- The borrower could build or repair their credit with regular payments.
- And for the co-signers, they will benefit from getting a credit mix on their credit report, and this may improve their credit history.
Cons
- You may get more loan than you are able to afford.
- The credit history of the co-signer is at risk if the borrower is unable to pay back.
- The co-signer may have to repay the loan if the borrower cannot.
- The co-signer may have limited borrowing power because the loan is counted in their debt-to-income ratio.
- The two parties relationship could be broken if the loan is not managed well.
Getting a personal loan with a co-signer comes with lots of advantages and disadvantages. But you need to know that most of the risks fall on the co-signer because it can greatly affect their ability to apply for a loan.
Co-Borrower vs. Co-signer
Just like I have mentioned above, a co-signer is a backup for loan payments, stepping in only if the main borrower doesn’t pay. However, on the other hand, a co-borrower, however, shares equal responsibility for the payments from the start. And usually, they also share ownership of the item being purchased.
For example, in the case of a married couple taking out a mortgage together, both individuals are co-borrowers, meaning they jointly own the house. And they will have to make monthly repayments together.
In contrast, if a parent or guardian co-signs their child’s car loan, they only have to make payments if the child is unable to do so. The parent may not have any ownership rights to the vehicle, even though they’re responsible for the loan if the loan is not repaid by the child.
How to Find a Co-signer for a Personal Loan
Just anyone can co-sign a loan. However, keep in mind that it is a matter of trust. As a result of this, you are likely to find a better option when you ask your family members and friends to help in co-signing.
When you are in search of a co-signer, it is very important to show the individual that you won’t default on the loan. Because the cosigner may not be really sure yet, you need to be able to show that you will be able to pay back the loan.
Additionally, if there are no friends or families to go for, you don’t need to panic. There are lots of services that can match you up with a good cosigner. In this case, you will have to sign up to have an individual help you out. However, in this case, you will have to make payment for the service. Keep in mind that the service fee will depend on the amount of the loan, your financial situation, your credit score, and many other factors.
Co-signer Alternatives
Cosigning is not for everyone, and that is perfectly okay. However, that does not mean you are out of options. There are other things you can try. You can try shopping around with other lenders. There are lots of lenders that give loans to people with bad credit.
Secondly, you can try out securing a loan using your property as collateral. However, keep in mind that if you default on the loan, the lender will repossess the property. You can also ask your friends or family members or go to a credit union. They may be able to help you out with the loan more than banks or other lending companies.
