Have you been invited by a family member or a friend to be a cosigner for their loan? Or have you ever experienced the need to have a cosigner to be approved for a loan?
Everyone who is suffering from a bad credit score might already have experienced this dilemma. But what exactly is a cosigner, and how can they help you acquire a loan?
There are so many questions revolving around the issue of a cosigned loan. Is it safe? Or is it beneficial to both the cosigner and the borrower? These questions are what most people ask out of curiosity. But before you accept or deny the responsibility of a cosigner, you must know the pros and cons of being a cosigner.
Help the Borrower Acquire a Loan
The main reason why you might consider taking the responsibility — even though it might affect your financial record — is that you want to help the borrower acquire money. The borrower might have a valid reason why they need to take a loan. Maybe it’s for emergencies or other important things.
If you agree to be the cosigner of a loan, be it a bank loan or one from an online lender such as, say, Credit Ninja Loans, the borrower’s chances to be approved will increase despite their credit record. And if they get approved, it will significantly help them with whatever problem they are currently facing.
Potential Credit Score Improvement
Since the loan is both the principal borrower’s and the cosigner’s responsibility, it will be visible on both of your credit histories. If the borrower accomplishes their obligations, the good deed will reflect on both of the credit records. In return, your credit score will increase, which is a good thing for you.
In short, both the borrower and the cosigner will share the responsibility and the impact of the loan. On the other hand, the downside risk is almost entirely on the cosigner — which is why it is best to cosign a loan only if you know the borrower well and you can trust them with your financial record.
Protecting Yourself as a Cosigner
Let’s face it; everyone knows that being a cosigner has its downsides — and, to be honest, there are far more risks than benefits. That being said, if you’re willing to help the borrower anyway, there are ways to ensure your security. Here are the things you can do before taking on the role of a cosigner.
- Be open with the borrower and share your thoughts, fears, and expectations prior to cosigning any loan. Once you establish a mutual understanding, put your agreement and expectations in writing to help smooth out any future misunderstandings.
- Know your rights and responsibilities as a cosigner before signing on the dotted line; talk to the lender and don’t be afraid to ask questions.
- Tell the lender to notify you as soon as issues regarding the loan come up so that you have enough time to talk to the borrower.
- Ask the borrower to give you access to the loan account to track the progress of the loan and see if everything is going fine. This way, you can intervene before any problems start.
You can include in your agreement that you have the right to notify the borrower if you notice any delay in the payment. Hopefully, this will help prevent the borrower from complaining about you “nagging” them about the loan you cosigned.
Yes, it’s a bit of a stretch — but there are benefits to cosigning a loan. Still, those benefits are limited to situations where the principal borrower acknowledges their responsibility. That being said, it’s also important to realize that if the person you cosign for ultimately fails to pay for the loan, the disadvantages of accepting your role as the cosigner will fall entirely onto you.
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