Having the ability to get a cosigned loan is a great way for individuals with low credit scores to borrow money. The process itself is extremely simple and only requires an additional individual to sign the loan agreement. Most lenders offer cosigned loans as part of their standard personal and business offer, however, it should be possible to negotiate with a bank representative and have any type of loan cosigned.
This having been said, please keep in mind that the cosigner will almost always have to have a credit score that is equal or greater than that of the borrower, allowing him to act as a guarantor. So, what are the best loans to have cosigned? To answer this question it is first important to understand how cosigning works.
How Does Cosigning Work?
A cosigned loan is very similar to regular ones in the sense that the borrower takes out a loan from the lender. An interest rate is attached to the loan that the borrower must pay as he repays his debt. However, when having a loan cosigned, the borrower will need another individual to sign the agreement. The cosigner will act as a guarantor and repay the money if the borrower is unable to.
It is also important to keep in mind that lenders look differently at cosigned loans than regular ones. When applying for a regular loan, the bank only analyses the credit rating of the borrower. When applying for a cosigned one, the cosigner’s credit score is also taken into account.
This can make it easier for individuals with poor credit ratings to borrow amounts of money that they wouldn’t otherwise have access to. Furthermore, they are a great way to build up one’s credit score, over time.
What Types of Loans Can Be Cosigned?
Generally speaking, all banks and other private lenders will have certain standard cosigned deals on offer. These often have fixed benefits such as lower interest rates, higher value limits, and a more relaxed repayment schedule. However, any loan can be cosigned, provided that you negotiate the deal with the bank representative.
Keep in mind that it is only possible to cosign loan agreements. Credit card agreements or other types of banking services will not be able to be cosigned.
Furthermore, cosigning loan agreements is a practice only used by banks and various other private lenders that emulate their functional structure. In other words, cosigning an online loan or a microloan from a P2P lending platform is not yet possible.
What Loan Should You Get a Cosigner for and Why?
While almost any type of agreement can be cosigned, it is usually better to choose this route only when looking to borrow large amounts of money. One of the main issues that young adults have is the fact that they do not have the credit rating required for a loan large enough to purchase a house. Getting a parent to cosign the loan agreement makes it possible for them to borrow the money and also get a lower interest rate if the cosigner has a high credit rating.
The best way to take advantage of cosigned deals is by applying for large secured personal loans that have variable interest rates. Although the variable interest rate may increase the cost of the loan, these loans also tend to have higher values than fixed-rate ones.
As a rule of thumb, always find cosigners that you would trust with your finances. Most individuals ask their parents and siblings to cosign the agreements. This ensures that if the borrower is unable to make one or two monthly payments, the cosigner can be trusted to make them for them.