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What is a co-signer and how do they help?

Here is everything you need to know about getting a co-signer or becoming one

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The Big Picture
October 24, 2022

A co-signer is someone who has a good credit score that agrees to co-sign their name on a loan, giving a lender additional assurance that the loan will be repaid.

Though getting a co-signer can be easy, they do need to understand that they take on a huge responsibility when they sign their name to the loan. Here is everything you need to know about getting a co-signer or becoming one.

How to get a Co-signer

Let's face it, times are tough. It seems more and more people are facing financial difficulties and that's okay. If you are struggling to make on-time payments or are in need of an auto loan or a loan for an apartment lease, getting a co-signer might be your best option. What should you look for when looking for co-signers?

Well for starters, co-signers should be people that have good credit scores. It is usually a good idea to ask a friend or family member to be a co-signer, because they take on a huge responsibility that a stranger might not be willing to take.

Primary Borrower

If you are the person asking for a co-signer to cosign on a loan, that makes you the primary borrower. And if you need a new car loan or you're falling behind on your monthly payments on your personal loans and you do not have sufficient income to pay them, then it's time to seek out a co-signer. Loan lenders will not give you a car loan if you fail to make payments or if you have bad credit. That's why it's so important that your cosigner's credit score is in good standing.

Responsibilities of a Co-signer

Being a co-signer is no easy task. If a lender approves the co-signing of the loan, that does not mean the cosigner or the primary borrower is off the hook. A co-signer is a safety net for lenders. If the primary signer misses payments on a monthly payment, then the co-signer is the one legally responsible to make those debt payments. So as a primary signer, just know you are the person preventing the cosigner from having to pay the lender.

If you are taking on a cosigner, make sure to practice financial responsibility so they do not end up paying late or missed payments. And while both you and the cosigner take on equal responsibility for the loan amount, the cosigner is the one legally obligated to pay on the cosigned loan.

Co-signer's Credit

A big question is, does the cosigner's credit history get affected? The answer is, it all depends on the primary borrower. If the primary borrower fails to make monthly payments, then yes it could affect their credit score negatively. Lenders will do a credit report not only on the primary signer, - but also the cosigner. If a lender then approves a cosigner, that means the credit reports show that they have good credit. In the loan agreement, while the co-signer will be there to help pick up the slack if the primary borrower falls on hard times, it is the cosigner's responsibility to pay the entire debt. Any missed payments or late fees that aren't paid, the lender reports it to credit bureaus and that will affect the cosigner's credit score. And if you cannot make any payments at all, the cosigner can face legal trouble from lenders.

Co-signer Benefits

Being a co-signer is not all bad. As a co-signer, you are helping people in need. You can be the reason a family member gets approved for a loan they've been trying to get. You can also help them receive a lower interest rate and more favorable terms in the loan contract if you sign with them. You can also help them build better credit and have them set up financial goals that they can reach, to help you in the long run with payments. And if a primary borrower manages to make all their payments, then you will notice your credit score improve.

Co-signing Loan Application Reminders

Many lenders offer cosigners on a large number of credit products, such as auto loans and personal finance loans. The loan gets approved by a lender once they see a cosigner has enough income and a good credit score after a credit check. This is done just in case the primary signer cannot make payments and gives the lender additional assurance that the cosigner can pay the debt. As the primary signer, you take on responsibility for the co-signer so that you are able to make the payments. Co-Signers are more for helping you get a loan approved, not paying all of your different debts. So make sure to treat your co-signer right and make those payments.

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