… with lots of road blocks. And it makes sense why.
If you need a cosigner to qualify for a loan, one (or more) of these things is true:
- You have a troubled credit history and a low credit score
- You have no credit or your credit history is very short
- You are asking for a larger loan than your current finances can support
In other words, you are a less-than-ideal borrower. You must rely on someone else’s credit to qualify.
Before you ask a friend or family member to cosign a loan for you, consider this… the cosigner takes all the risks with no real benefits. Sure, they may get personal satisfaction out of helping you achieve your goals, but that won’t help a whole lot if you default and they suffer the consequences.
And, those consequences can be very serious, indeed.
- Your cosigner is 100% responsible for your debt if you cannot make the payments. Even if you file bankruptcy and are no longer liable for the debt, your cosigner’s responsibility lives on.
- If you default, your cosigner’s credit score will suffer, too. Through the cosigning agreement, their credit score is tied to your ability to pay.
- If the cosigner cannot pay the loan if you have trouble, they could lose their assets, like a car or their home.
- If you default, the cosigner can be sued before you are. The lender knows you can’t pay… so they will go after your cosigner first.
- If you end up settling with the lender for a lower amount, your cosigner may have to report the forgiven amount as income on their taxes. That could cause a serious tax burden.
- After cosigning for you, they may not be able to get a loan when they need one because your loan makes it look like they have too much debt.
That’s some serious stuff to consider.
Here are a few tips to help prepare for asking a family member or friend to cosign a loan for you:
- Have a detailed plan that includes proof of how you will make the payments every month. You may want to bring paycheck stubs, bank statements, or other evidence to show you can actually afford the payments.
- Be realistic and only seek to borrow what you will actually need. Be ready to explain exactly what you will use the money for.
- Give them some time to think. If you are too eager for an answer, they may feel rushed which could hurt your chances that they’ll say yes. Plead your case, then give them a few days to make a thoughtful decision.
If you are looking for a cosigner for your student loans, you may have an extra bargaining chip. Many private student loan lenders allow you to ask for your cosigner to be released from their responsibility after you make 12 – 48 on time payments. This cosigner release is not automatic. Call your prospective lender to see if it is an option for you, and if it is, what you have to do to make it happen.
If you can’t find a cosigner, or do not want to risk ruining a cherished relationship if things go bad, you still may have options.
First, reevaluate your needs. Do you really need the new car you picked out, or can you get by with an older model through a used car dealer? Maybe you could go to college part time and work at the same time. Yes, it will take longer to get your degree, but you would be able to afford the tuition on your own.
Patience may be the key. If your main problem is that your credit history is too short, a little time may be all you need. Use the credit you do have very wisely, pay all your bills on time, and monitor your credit score. Before you know it, your efforts will pay off and you’ll no longer need a cosigner.
If your credit is troubled (even if you have repossessions or collections), try NCES Credit Restoration. In as little as 90 days, you could see results significant enough that you may no longer need a cosigner at all!
Everyone’s situation is unique. Call us today to find out more or visit www.myscorerestored.com to schedule a free consultation.
If you have any questions, please give us a call at 770-952-5168 or contact us online.
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This information is intended for informational and educational purposes only and not as legal advice. If you have concerns about your credit report, harassment, identity theft, illegal collections activity, garnishments, or property liens, you should consult an attorney who specializes in consumer rights and defense.