The ability to have loans cosigned has given many individuals the chance to borrow more money than the lender would normally agree to give them. The process itself is extremely simple and most lenders have cosigned loans among their business or personal financing deals.
As easy as it may be to have a loan cosigned, finding the right person to do it can be difficult. This is mainly because when cosigning, both the borrower and the cosigner will experience the consequences of missing monthly payments or failing to repay the money. Here is what you need to keep in mind when deciding who to ask to cosign your loan request.
What Is a Cosigned Loan?
Cosigned loans are forms of debt that require an additional individual to sign the loan agreement. By becoming a cosigner, this person agrees to repay the loan if the borrower is unable to. Furthermore, when it comes to cosigned loans, lenders also look at the credit rating of the cosigner when establishing the terms and conditions of the agreement. This makes it easier for individuals with poor credit ratings to obtain loans that they would not have access to otherwise.
It is also important to keep in mind that both the borrower and the cosigners can have their credit score lowered if they are unable to repay the loan on time. The act of cosigning spreads the responsibility of repaying the loan between the two in equal measure, which means that both individuals will suffer the same credit score reduction.
Who to Select as a Cosigner?
Most lenders will only allow blood relatives to act as cosigners to ensure that there will be no issues if the borrower cannot repay the money. However, if you are prepared to negotiate with the bank representative, it should be possible to have anyone cosign your loan request, provided that they have a high credit score and a good relationship with the lender.
This having been said, who is the best person to ask to be a cosigner? Generally speaking, you should only choose individuals who you trust and know can properly manage their personal finances. Even if you do not intend to rely on them to make any monthly payments, knowing that they will be able to take over the repaying of the loan, in case of an emergency, is important.
Ask your parents and siblings if they would be willing to cosign your loan request, however, keep in mind that your spouse may also be able to do this. Furthermore, some lenders also allow employers to become cosigners, and many companies promote this type of support.
How to Prepare When Applying for a Cosigned Loan?
Preparing to apply for a cosigned loan, as a borrower, is not any different from any other type of loan. Focus on reducing your credit utilisation ratio, repay any outstanding debt that you might have and avoid using your credit cards a few months before submitting your application. You should also refrain from taking out payday loans or any other similar microloans.
This having been said, the credit score of the cosigners is also important in determining what interest rate you will be offered, which means that it is recommended for the cosigner to follow the same steps as the borrower. Generally speaking, the higher the credit rating of the borrower and cosigner, the better the terms and conditions will be.
Overall, cosigned loans can be extremely useful tools, provided that you find the right individual to help you get the loan. Those interested in getting a cosigned loan should first ask their parents and siblings, even if their credit rating is not great, and only then move on to employers and friends.