Imagine that you have to make a big purchase, but your credit history is not up to par. What can you do in such a case? One decision would be to check out Bad Credit Loans in Maryland, where you might find the needed assistance. Another – to apply for a loan with a cosigner. This way you will meet the minimum requirements to qualify for a loan and at the same time secure a good rate. Though not all lenders accept this, so you’ll have to choose.
- 1 Can I Get a Loan With a Cosigner from a Bank or a Credit Union?
- 2 What Does a Cosigned Loan Mean?
- 3 How Does a Cosigned Loan Work?
- 4 Do I need a cosigner?
- 5 What Should I Search for in a Cosigner?
- 6 Advantages and Disadvantages of a Cosigned Loan
- 7 Is Getting a Loan with a Cosigner Easy?
- 8 How to Apply for a Cosigned Loan
- 9 How a cosigner matters for different loan types
- 10 What’s the difference between a cosigner and a guarantor?
- 11 How does a cosigned loan differ from applying jointly?
- 12 What are the Alternatives to Borrowing with a Cosigner
- 13 In Conclusion
Can I Get a Loan With a Cosigner from a Bank or a Credit Union?
This mostly depends on the lender. Smaller banks and many credit unions do allow people to apply with a cosigner, so you can try. It’s not common for larger banks though, as they have stricter eligibility rules, therefore you might cross them out from your potential lenders’ list.
Banks may offer you a discount if you’re borrowing with a cosigner, while a credit union might ease the membership requirement for one of the applicants, though it’s not too typical.
What Does a Cosigned Loan Mean?
Let’s say you want to obtain a $1,300 dollar loan. If you get it, you’ll be responsible for paying it back. But if you have a cosigner, they can agree to repay in your place in case of an emergency. Sometimes a cosigned loan is a good way to qualify for a competitive rate.
How Does a Cosigned Loan Work?
First of all, you and your cosigner have to submit your personal and financial info, while filling in the application. This way, a lender can check not only your credit history but also your cosigner’s, which may add assurance for them, if your cosigner’s credit is solid. It is generally advised to cosign with somebody who has a good financial history, as it will be reviewed by lenders very thoroughly.
Do I need a cosigner?
To answer this question, consider the following:
- How good is your credit score? Do you feel like you won’t qualify on your own because of it? Maybe you need a cosigner with a better history to get better rates.
- Do you have a job? If you rely on alternative sources of income, a cosigner can help you qualify for a loan.
- Do you want to borrow more than your income would allow? A cosigner may help you get the larger loan.
What Should I Search for in a Cosigner?
There are qualities that make some people better candidates for a cosigner that others:
- They must be employed to afford repayments, over 18, a US citizen (or permanent resident). The age criteria differ from state to state, though. In Alabama and Nebraska it’s 19, and in Mississippi – 21 years old.
- Their credit score has to be higher than 670 to get a better deal.
- They shouldn’t have lots of personal debts. People who already have other debts may not qualify to share the responsibility for your loan. They also shouldn’t borrow any money while paying off your debt.
- They must have a close relationship with you. Most cosigners are relatives or best friends of the borrower. Beware of scam artists, and do not attempt to cosign, for example, a $5,600 loan with someone you don’t know very well.
Advantages and Disadvantages of a Cosigned Loan
Why a cosigner is beneficial for you:
- They improve the probability of approval
- With them, you can count on lower rates
- You might opt for larger sums
- Lenders feel more secure and open to negotiations
The downsides to a cosigned loan:
- It’s no use if your cosigner’s credit history isn’t too good
- If you default, your cosigner’s debt-to-income ratio will be affected
- It might damage your relationship
- Sometimes such loans take longer to apply for
Is Getting a Loan with a Cosigner Easy?
Everything depends on whether or not your cosigner minimizes risks for the lender. If yes, then you can, in fact, count on fast cash with the best rates. If no, then the process won’t be any easier for both of you. If your friend or a relative has a poor credit history but still want to apply for a loan, suggest they check out Bad Credit Loans in Kentucky.
How to Apply for a Cosigned Loan
If you already know how to apply by yourself, then probably the below info wouldn’t be new for you. These are the steps to take in such a process:
- Research potential lenders. Get to know the feedback from other clients, their terms and APRs.
- Make sure that both you and your cosigner have the necessary documentation, including bank statements and employment info, to make the application quick and easy.
- Apply together. It’s best to be by each other’s side while applying online for the loan. This way one person can help the other with some questions.
In addition to all of the above, you might want to inform your cosigner of the following to ease them into the application process:
- What are you borrowing money for? Different reasons for a loan have different consequences for a cosigner, who’ll have to pay off your debt in case of an emergency.
- The sum you’re obtaining. It goes without saying, that a smaller loan is easier to repay. Your cosigner will probably be more comfortable with a lower amount of money because in this case, you’re less likely to face default.
- The frequency of the payments.
How a cosigner matters for different loan types
Depending on the type of loan, your cosigner might be subjected to different consequences. The amount you’re borrowing, the terms and the purpose matter the most. There are following types that you might consider:
- Personal loans. These are tricky, as a cosigner is liable for the loan, but isn’t entitled to any of the funds. Therefore, people are reluctant to apply for this one.
- Auto loans. These are still not very beneficial for a cosigner. If they are listed on the title though, they assume part of the ownership and become a joint applicant, not a cosigner.
- Student loans. Parents most often agree to be responsible for their child’s payments. Young people rarely have a credit history, and such loans are usually high, so cosigning with a parent is a good solution.
- Mortgages. A cosigner wouldn’t own any property if they’re not listed on the title, just like with the auto loans. Your property is your collateral, so cosigning for such loans is useless.
- Business loans. A cosigner will probably be asked to provide collateral, even if they don’t own any part of the business. If you default, they’ll lose their collateral.
As you can see, while a cosigner provides assurance for the lender in case you’re unable to make repayments, but doesn’t get any privileges for doing so. Therefore, not many people agree to this type of arrangement, and you have to really be sure of your ability to pay off your debt not to jeopardize another person.
What’s the difference between a cosigner and a guarantor?
The latter is mostly associated with rentals where only the primary applicant lives at the residence, but sometimes this term is also used with personal loans. The guarantor is only responsible if the main applicant defaults, whereas a cosigner has to repay late or missing payments as well.
How does a cosigned loan differ from applying jointly?
The simplest way to explain is that a joint applicant has some level of ownership over the funds and viewed more as a partner, whereas a cosigner has no say in how the loan is used, while still being liable in case of default or missing payments.
What are the Alternatives to Borrowing with a Cosigner
Remember that cosigning with someone is a risky business, that sometimes isn’t worth it. Before going for it, consider the following alternatives:
- You can make a secured loan, using your property or vehicle as collateral.
- Get help in building your credit from Community Development Financial Institutions (CDFIs). Their rates are usually affordable for low-income clients.
- Apply for student loans in places that look at your academic achievements rather than credit score.
- Some lenders offer loans for non-residents.
If you can find a provider that can satisfy your financial needs and allows a cosigner, you can opt for easier acceptance and a better interest rate. Always communicate honestly with your cosigner, and let them know the tiniest details of the deal you’re making, so that you both understand the risks properly. Good luck!
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