Introduction
When you apply for a personal loan, the lenders check your credit history to determine whether or not you should get it. Getting your loan approved won’t take too long if your credit history is good. However, if your credit score isn’t too high, applying for a personal loan with a partner can improve your chances of getting approved. But you must understand the process clearly before you decide to borrow. Here are some things to know before getting a personal loan with a co-signer.
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What does co-sign mean?
When you apply for a personal loan with a co-signer, the co-signer doesn’t receive the money, but they are responsible for the repayment if you miss a loan repayment or default on paying your loan. If you cannot pay it off, the co-signer must pay off the debt. The loan will be recorded in your and your co-signer’s credit history, but you will receive the money. This is done in case when the borrower doesn’t have a good credit history and isn’t likely to get approved for a personal loan.
Your co-signer credit history should be better than yours to get approval. If both your records are bad, you won’t get approved. The co-signer has a huge responsibility, as they might need to repay your total loan, so be wise in selecting the co-signer. Ideally, they should also have a good enough income to cover your loan if needed.
What you and the co-signer will need when applying?
The lenders will require you to fill out the information for yourself and your co-signer. You will need to provide security number details, income information & proof of the same, and debt obligations. All banks and credit unions offer personal loans, so try to find one that offers the lowest interest rates. Some banks let you fill out the form online, while others would ask you to visit the main branch. Once filled, the time it might take to get approval depends entirely on the lender.
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How to make it work?
If you choose to apply for a personal loan with a co-signer, try to stick to these practices to ensure the arrangement doesn’t backfire on both of you.
- Co-signer release
If possible, choose a lender that offers a co-signer release option. Some lenders let you remove your co-signer’s name after you make 36 or 48 on-time repayments. If you cannot avail of this option, you could consider refinancing for a new personal loan that you can get on your own. Having someone else take responsibility for your loan repayment is a risk and should be treated cautiously.
- Understanding
You and your co-signer should have a good bond and understanding. Discuss with them thoroughly to make sure what being a co-signer might include. Inquire about their financial situation; your loan shouldn’t affect their finances later. Life is pretty uncertain, and there’s no way to guarantee the future. Can the co-signer pay if you get into an accident or aren’t financially capable of repaying the loan? And more importantly, are they completely willing to pay?
- In times of trouble
If you are struggling with the repayments, let the co-signer know. They have every right to know about the repayments and your financial situation. Being proactive would keep misunderstandings away and let the co-signer be in the loop about how it’s going from your side.
If you are struggling to make the repayment for a particular month, your co-signer might help you repay for that particular month. It’s better to ask for their help instead of missing out on repayments (which would affect your credit scores).
Conclusion
A co-signer can help you get better interest rates but the arrangement is risky. Communication and transparency are non-negotiable if you want to make this work. These tips should help you and your co-signer reach a better understanding and set boundaries before applying for a personal loan together.
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