3 things to know about co-signed loans
Here are some important things to know about co-signed loans before you sign up.
- The credit score of your co-signer is important. A co-signer with excellent credit improves your chances of qualifying for a loan if your credit is poor.
- You are not the only one affected. The responsibility of the co-signer for the loan is equal to yours. If you miss a payment or make a partial payment, they are responsible for paying the lender in full. In addition, missing payments damage the score of the co-signer as well as yours.
- You can withdraw the co-signer later. When your credit score is high enough, you can remove the co-signer. To do this, you will simply refinance the loan on your behalf alone.
How to get someone to co-sign a loan
You’re probably nervous about asking someone to co-sign a loan, but remember this: Most adults have been you at some point. We all start out with a slim (or no) credit score and many of us have needed help getting started. Here are some tips for asking someone to be your co-signer:
- Be frank. Explain your situation and why you need a co-signer. You may have just graduated from school and have unexpected medical bills. Maybe you’ve landed a new job and need reliable transportation to and from work. Whatever your situation, let the potential co-signer know.
- Discuss the monthly payment. Since the co-signer will be responsible for any missed payments, discuss how much you can afford to pay and explain how you plan to make those payments.
- Offer proof of payment. You can make a co-signer feel more comfortable signing your loan by promising to provide proof of payment each month. This way, they never have to worry about a late or partial payment affecting their credit score.
Alternatives to obtaining a co-signer
Even if you have poor credit, a co-signer is not your only solution. Here are some options to consider.
Personal loan for borrowers without credit
Some lenders specialize in providing personal loans without credit. This loan will carry a higher interest rate than other personal loans. Still, getting a personal loan for zero credit borrowers allows you to be the only person on the loan application. You will also increase your credit history and credit score as you pay off the loan.
Personal loan for bad credit
If bad credit is getting in your way and preventing you from getting an unsecured loan, try applying for the best personal loans for bad credit.
Yes, the interest rate on the personal loan will be higher than you expected, but you can use this loan to reform your credit history and boost your all-important credit score.
Secure personal loan
There are two types of personal loans: a secured loan and an unsecured loan. At this point we have discussed unsecured personal loans – the type that only requires your signature. A secured loan is different.
With a secured loan, you put something of value as collateral. If you miss payments, the lender can take possession and sell that item. Your collateral can be anything of value, such as a savings account, retirement account, vehicle, jewelry, artwork, or land.
Not all lenders are equipped to provide a secured personal loan (most online lenders do not), but it is worth calling to find a lender who deals with secured personal loans.
The bottom line
Personal loans can make your life easier. Whether you need to cover a debt consolidation, get auto repairs, switch from a variable rate loan to a fixed rate loan, or get rid of payday loans with sky-high interest rates, a loan staff can make it happen.
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