Co-signed Loans

Although it may seem surprising, in fact the lender knows you better than you think. Let’s assume that you apply for a loan to pay for a new car, property, or any other acquisition, and the lender is well aware that your ability to repay the loan is minimal. From your own point of view, you would be able to repay it.  However, the lender has done a credit check on you and has all the statistical data to be sure that you stand almost no chances of being able to repay the loan.  At this stage, instead of merely rejecting your application, the lender can ask you whether there is someone who would agree to co-sign the loan with you.

Co-signed loans (also known as joint loans) are loans given to two or several parties on the basis of their credentials as a whole. Such loans can be co-signed by married couples, friends, business partners, relatives, etc.

During the application process annual incomes of co-signers are considered together to increase the chance that you may get your loan request approved. The amount of the loan can be higher provided you have more resources to prove your trustworthiness. Thus, the consolidation of assets and incomes in a joint account gives you the opportunity to accomplish what you couldn’t afford.

The up-sides of co-signed loans for the person who actually needs a loan but can’t get it on their own are obvious. Bad credit score or no credit history, low income will not be a hindrance to getting the needed financing any more if there is a co-signer to back up the loan. 

However, there are absolutely no advantages of co-signing someone else’s loans. You will have to share 100% of responsibility and get nothing out of it. Your friend gets a new home and you are forced to liquidate the debt if he/she can’t pay off the loan. Nothing is fair about such kind of deal.
According to the data revealed by FTO, three out of four co-signers pay off the loan they agreed to co-sign.
The thing is that if the borrower stops repaying a loan, the lender will make you do it without even trying to collect the debt from the borrower. Apart from the missed payments, you will probably have to pay fees associated with this loan. Moreover, you risk losing any assets put as collateral for the loan and damaging your credit rating.
Still, under certain circumstances co-signing on a loan can be a good idea. For example, a father may co-sign on a son’s first car to help him set up credit.
Anyway, before becoming a co-signer for someone else, don’t forget about all the risks involved.

 


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