How Can Having A Co-Signer Make It Easier For You To Get A Loan?

How can having a co-signer make it easier for you to get a loan? Co-signing can benefit the borrower if the lender feels that the borrower is in a high risk category. When you want to obtain a loan, the...

When you want to obtain a loan, the first thing any lending institution will do is to look at your credit report. Your credit report contains information and payment history on any credit cards, loans, or utility bills that you have had in the past and present. People who have negative marks on their credit report are a poor risk to lenders. If you have made payments late or are delinquent on any account, it will be in your credit report. What is sometimes even worse than a poor credit report is a credit report that contains no information. This means you have no credit and you are a poor risk to lenders because they do not have any means by which to judge your reliability. In instances like these, it might benefit you to enlist a cosigner for whatever loan you are trying to obtain. Anne Reed of Acceptance Mortgage in Sparta, New Jersey is a loans expert.

"Co-signing can benefit the borrower if the lender feels that the borrower is in a high risk category," Reed said. "By adding a co-signor with higher credit and/or income, it allows the lender to feel more secure. It also allows the lender more ability to collect on the debt should the debt 'go bad.'"

Lending institutions feel much more secure giving out loans to those with cosigners because they know they can recuperate their money from them in the event that you do not pay. With the right cosigner, you may be able to get a loan even though you have bad credit.

You might even benefit from a cosigner if you have good credit. Some people have excellent credit but their debt-to-loan ratio is very high. This makes them a bad risk even though they have good credit. A cosigner can help you to get a loan even when the institution feels that you already owe too much money.

Having a cosigner can also help you to get a loan with a lower interest rate. People with poor credit histories often get penalized with high interest rates. A cosigner can help you qualify for a lower interest rate if they have excellent credit because the bank feels confident that it will be paid. Even if you are able to secure a loan with your own credit, you might consider having a cosigner if the interest rate can be reduced.

If you take out a loan with a cosigner, it is important to make your payments on time and in full so as not to jeopardize your cosigner's credit. Once you have had a good history of paying your loan on time your credit report will reflect this good information. In time you may be able to refinance the loan and have it totally in your name and that will release the cosigner from their obligations. Remember, the cosigner will be as legally liable to repay the loan as you are, so you will need to consider the ramifications of your nonpayment. Be prepared to hear the word 'no' when you are asking someone to cosign. It is a big responsibility and should only be entered into by two parties who completely trust each other.

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