Most people need to get a loan at some point in their lives, whether it’s used to get a car, pay for school or buy a house. Of course, getting a good loan can be difficult, especially for those who are just starting out and don’t yet have a sound credit score. That’s when a cosigner can help.
What is a cosigner?
In basic terms, a cosigner is someone who applies for a loan with you. That means they are legally responsible for paying back the loan if you can’t or don’t pay it back yourself.
Why would you need a cosigner?
One reason you may need a cosigner is to qualify for a loan with a better interest rate or better loan terms. A good cosigner should have a strong credit history and credit score, which tells the bank they are responsible with their money. Even if you make enough money to pay the loan back, without the credit history or score to back you up, you still may not qualify for the loan you need without a cosigner.
Being a cosigner can be quite risky financially though, so it’s important to know what you’re asking them to do.
What are the risks of serving as a cosigner?
Signing up to be a cosigner is a decision that requires a lot of forethought. They are as equally responsible for paying the loan as you are. That means if something happens and you can no longer make the loan payments, the cosigner is then responsible for covering them. Not only that, but if money gets tight and you make a few late payments, their credit history and score can take a hit that could take them a few months or years to recover from.
For those reasons, most cosigners tend to be people close to you, like parents or family members, who know you well and are willing and able to step in and help if needed. It’s also helpful if you consider whether the loan you want is for something that’s absolutely necessary. Settling for a smaller loan might mean settling for a less expensive car or smaller home, but it often means that you and your cosigner won’t be at risk of suffering serious financial burdens down the road.
Before you do anything, talk with our Personal Bankers at any of our offices. Let them know what you’re looking for and find out what all of your options are. You may not even need a cosigner, or there may be other options that better fit your needs. Whatever the case may be, we’re always here to help.