Everyone needs help to get a large first loan. When you don’t have a long credit history, a co-signer can be just the boost you need. Even student loans often require a co-signer to add another layer of security for the repayment of the loan. If the borrower doesn’t pay, the lender calls on the co-signer to pay the loan. The lender wants a co-signer with a good credit history who will be available to take over the payments if necessary.
The co-signer needs credentials equal to or better than the borrower's. Loan companies look at the co-signer’s credit score and credit report. The score can affect the interest rate for the loan. Loan companies want a co-signer with a record of stability. The length of time the co-signer has worked at a job and the length of time she's lived at the same residence are important factors. The finance company wants a co-signer it can locate next year or the year after.
Co-signer Action Required
A co-signer will need pay stubs and last year’s income tax return or similar information that proves her ability to pay the loan in case you can’t make the payments. A co-signer completes an application that requires personal information, including birth date and Social Security number, for checking credit records. She’ll need to provide her residence addresses for the last few years and two or three references. Once approved, the co-signer must bring identification and sign the legal documents before a witness or maybe a notary. This makes it official that she’s obligated to pay the loan if you don’t make payments.
Unlike a co-borrower who has equal liability and equal ownership, the co-signer has no ownership rights to the property purchased with the loan and no liability unless you fail to make payments. At that point, the finance company notifies the co-signer of your default and looks to him for payment. This is where it can get sticky, since the co-signer will contact you wanting to know why you aren’t making payments. He may agree to take over payments if you sign the purchased property over to him.
Selecting a Co-signer
Choose a co-signer wisely. Not only will the co-signer know your business but you might learn a little of his business as well. "Smart Money" explains how the borrower is at the mercy of a co-signer’s credit history on a student loan. When the student renews the loan request for the new school year, the lender checks the co-signer’s credit score. If it’s lower than last year, the interest rate for the new student loan will likely increase over last year’s interest rate.
As an alternative to having a co-signer on anything but a student loan, you can save more money for a down payment and try again later to get a loan. If you make a large down payment for a purchase, your monthly payment decreases and the finance company may not require a co-signer. While you’re saving and paying your bills, you’re also developing a longer credit history and employment record, as well as time at your residence that will help you get a loan without a co-signer.
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