There’s nothing wrong with needing a little help. Maybe you’re young and still building your credit history. Maybe you’ve hit some financial road bumps. If you need a loan and your credit is less than stellar, a co-signer can help you qualify. Adding a co-signer may also lower your interest rate and give you an opportunity to improve or establish your credit.
To be approved as a loan co-signer, you'll need to have good credit and proof of steady income.
How a Co-signer Helps You
A co-signer accepts financial responsibility for your loan. This means that if you don’t pay the loan, your lender will expect your co-signer to pay. By adding a co-signer to your loan, your lender lowers their risk, making them more likely to give you a loan. As long as your co-signer has a good credit history, your lender may give you a lower interest rate or a larger loan than they could if you were going solo.
What Your Co-signer Needs
Your co-signer should be someone with a good credit score and solid credit history. The ideal co-signer should have a history of on-time payments. She also should have the ability to pay. This means she has a steady source of income. The income can be from work, retirement or other sources as long as it’s ongoing. Your lender will also evaluate your co-signer’s stability. They will look at how long your co-signer has lived at the same place and her employment history.
What Your Co-signer Should Know
A co-signer on a loan is taking on a big commitment. If you stop paying on the loan for any reason, the co-signer will be expected to make payments. A lender can take the same actions against a co-signer as they can against you. This can include suing your co-signer or garnishing her wages if you don’t pay the loan.
Taking on a loan will also impact the co-signer’s ability to get additional credit. If she needs additional credit, the loan she’s already co-signed will show up on her credit report. Depending on how much overall debt your co-signer has, she could be declined for future credit.
Depending on the loan and the rules of your lender, you may be able to release your co-signer from the loan. You may have to make a certain number of on-time payments before you can release them or meet other requirements.
If your co-signer is concerned about your ability to pay, you can ask your lender to notify her if you miss a payment. Your co-signer should also get a copy of any signed loan documents and disclosures for her records.