You may need a cosigner for a financial product if your credit score isn’t up to par. Here is some information on cosigners, why you may need one and what your alternatives might be.
What Exactly Is a Cosigner?
A cosigner is a person who agrees to take full responsibility if another person defaults on a loan product. Such people usually have excellent credit scores and strong reputations with credit bureaus.
A cosigner situation can occur in various loans, but they’re most common in student loans and other instalment loans. According to Ascent Funding, it’s quite common to have private student loans with a cosigner. An automobile loan or regular personal loan may require a cosigner, as well.
When Could You Need a Cosigner?
You may need to request a cosigner if you have less-than-desirable credit. The lender might be a bit nervous about you and want to be reassured they will receive repayment for the loan product.
According to Ascent Funding, “if you don’t qualify for a loan in your own name,” you should consider applying with a creditworthy cosigner.
A lender may also ask for a cosigner if you’re new to the credit world and don’t have a history with any creditors at all. They may be willing to provide you with the loan funds but still want a little reassurance.
Four Alternatives to Having a Cosigner
Other alternatives are available if you don’t have a traditional cosigner, such as your parents in mind for your loan product. You have the option to ask a friend or family member to cosign for you instead of your parents.
This person will have to know you very well and have faith that you understand how important it is to repay your loans on time. You can sit down with the person and discuss the cosigning situation when no distractions are apparent.
You may have to settle for taking a much higher interest rate for a while. This may be more true with an auto loan than other types of loan products. The good news is that you may be able to apply for a refinance loan when some time passes.
You might also be able to talk to the loan company and see if they will take a larger down payment to compensate for the lack of credit score qualification. Larger down payment may make the lender a bit more confident that you’re fully invested in the product and repayment.
You could also try looking for help from a non-traditional lending source. Many lenders are open to the idea of helping people who have less than perfect credit. Thus, you can try to apply with that type of lender. You could also go in the direction of a peer-to-peer lender for help. Peer-to-peer lending involves people who want to invest in helping other people.
Should You Wait to Borrow Instead?
In some situations, you may prefer to wait a little while before you request a loan. For example, you might want to work on boosting your credit score for a few months before applying for a student loan, car or home. That decision will depend on where you stand financially, but it’s perfectly acceptable for you to do so.
Now you know more about cosigning and how it can work for you. Use the information above to take the next steps toward getting the perfect loan products.