Is a Cosigner Right for You? Navigating the Benefits of a Cosigner

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You’ve probably heard the term “cosigner,” but do you know what it means, how it can help you, or what qualities make a good one? If you find your federal funds aren’t enough to cover the cost of college, you can consider applying for a private student loan. Applying with a cosigner can help you qualify for a private student loan as it can be difficult for student borrowers to meet the criteria and income requirements by themselves. The information below will help you learn if a cosigner is right for you and what the potential benefits are of having one.

What is a cosigner?

A cosigner is a person who signs for a loan with a borrower. If the borrower misses payments or defaults on the loan, the cosigner is required to take responsibility for making the payments and repaying the remaining balance. Since both the borrower and the cosigner are equally obligated on the loan, missed payments and defaults will affect both the borrower and the cosigner’s credit.

How does having a cosigner help me?

Including a cosigner on a loan decreases the risk for the lender because the lender has another person who is obligated to repay the loan if the borrower defaults. Cosigners allow the lender to take on less risk, which not only increases the borrower’s chances of getting approved for the loan, but may also lead to better loan terms, such as a lower interest rate or shorter repayment length, both of which would save considerable money over the life of the loan.

In some cases, you may be able to qualify for a loan without a cosigner, but the loan terms are generally not as favorable. However, wanting a cosigner to improve your loan terms and needing a cosigner to get approved for the loan are two different circumstances. You may need a cosigner if you have no income or too little income, have no established credit or poor credit, your debt-to-income ratio is too high, or if you are either unemployed or recently changed jobs and don’t have an employment history. If any of these scenarios apply to you, you should consider applying with a cosigner to qualify for the loan. Applying with a cosigner will also allow you time to fix any of the above issues, giving you the ability to take out future loans on your own.

Who should I ask to cosign?

The most difficult part of choosing a cosigner is finding someone who is not only willing to sign on a loan with you, but also has strong enough credit. Typically borrowers will turn to spouses, parents, or close friends to cosign. No matter who you choose, be sure your cosigner is financially stable. Other traits to look for in a credit-worthy cosigner include having a good job with a solid employment history and/or owning a home or other assets. Asking someone to cosign on a loan with you is a big commitment, so make sure you are prepared. Tell your potential cosigner the reason you are asking them to cosign, your intentions to pay the loan back, and communicate to them that you can afford the payments. You can also ask your lender if there is a cosigner release option. Some loans will allow you to request that your cosigner be removed from the loan after a period of time if you meet certain requirements. Being prepared to answer any questions your potential cosigner has will show that you are serious about taking on the financial responsibilities of a loan.

Cosigning is a big commitment for both the borrower and the cosigner and should not be taken lightly. Make sure both you and your cosigner understand all terms and are clear on the responsibilities of the loan prior to signing.

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