Phone a Friend: Understanding How a Cosigner Can Assist As You Pay Off Your Debts
Asking somebody close to you to be your cosigner for a loan can be a scary task, especially if you don’t have any previous credit experience, or if your previous experience makes you look unfavorable to lenders. It’s risky for the 3rd party and can potentially cause problems with relationships. However, a cosigner can be a huge help when it comes to paying off your debts. Here’s some information about cosigners and why it might be a good idea for you to phone a friend.
What Is a Cosigner?
A cosigner agrees to be accountable for your debt as if it were their own by signing for a loan or credit card with you. If you miss a payment or cannot repay your loan, the cosigner agrees to be responsible for your debt relief. The cosigner can promise financial stability that you cannot promise, and assures your lender that you can handle the loan.
What to Do Before You Pick Up the Phone
Before you do anything, you should make sure you are calling the right friend for assistance as a cosigner. Usually family members or close friends will be the only people willing to sign with you. This is because the cosigner will not benefit very much from the arrangement. Cosigning is common in parent-child relationships, especially when the children require student loans to pursue further education. At this early point in their lives, students generally have little financial history and their parents are more likely to have the stability that will assure the lender that he’ll get paid back. Whatever relationship you have with your cosigner, make sure its foundation is one of trust and respect. Introducing finances into any relationship can put a lot of pressure on everyone involved. If you decide to ask someone to sign with you, ensure that you both understand the ways that cosigning can help you reduce your debt and the risks involved.
Getting Approved for a Loan
Because a lender will look at both your credit history and your cosigner’s credit history equally, you’ll probably have a better chance at getting the initial okay with a cosigner on your side. Again, pick your cosigner carefully. A good cosigner will greatly increase your chances of getting a loan with and a favorable interest rate.
Getting Lower Interest Rates
If your cosigner has an established credit history, a lender might be more willing to give you a lower interest rate. The better their history, the better chance you have at a lower rate. Again, choosing the right person to cosign is essential to making any cosigned loan worth the effort. Make sure you speak to your potential cosigner about their credit history before you make your decision.
Improving Your Credit Score
Cosigning can help you improve your score if you’re still young or have some bad history. This enables you to gain from better rates on other loans you might need in the future. If, at a later point, you become more financially independent, you can release the cosigner of responsibility of the loan.
Make Yourself More Accountable
A cosigner can help you get into the groove of making payments regularly and understanding the other particulars that come with taking out a loan. You will likely see more benefits and learn more about finances if your cosigner is financially experienced and trustworthy.
Overall, cosigning can work to your advantage. With that said, there are a lot of reasons why you might choose not to use a cosigner. The cosigner accepts enormous risks by choosing to sign with you on a debt. If you cannot make your scheduled payments, you should not be taking out a loan. Before you hang up the phone, be sure to speak with your selected friend about all of the specifics.
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