What is a Cosigner?
A cosigner is a person who signs for a loan or other debt on behalf of another. When a cosigner agrees to this action, he or she takes on the legal obligation for the debt, should a default occur.
When Is A Cosigner Needed?
Using a cosigner to vouch for the borrowing party is a fairly common practice. A cosigner might be needed if:
- A person does not have credit – It is not uncommon for parents to cosign on automobile loans, apartment leases and other obligations for their children when they are first starting out.
- Low income – When a person’s income is in question, a cosigner might help give lenders assurances that a loan will be repaid.
- Bad credit is an issue – A cosigner can help a person with bad credit overcome this issue and even obtain better standing in regard to interest rate offers and down payment requirements. The exact terms offered, even with a cosigner, will vary based on the loan applied for and the lender involved.
Risks For A Cosigner
Serving as a cosigner can be very helpful for the person trying to take out a loan or obtain a lease, but it can pose a risk for the signer. When a cosigner agrees to this action, they may face having to take on the full payments if the borrower defaults. This, in turn, can have a negative impact on their credit standing.
Student Loans
- 3 Factors that Contribute to Fluctuating Interest Rates on Student Loans
- What are the Consequences of Defaulting on a Federal Student Loan?
- What Happens when You Default on a Private Student Loan?
- Federal vs. Private: Comparing Student Loan Interest Rate
- Can You Get a Private Student Loan with No Cosigner?
