What Are the Requirements for Loan Co-signers?

A co-signer needs sufficient income to cover repayment of a borrower's loan.

A co-signer needs sufficient income to cover repayment of a borrower's loan.

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.

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.


About the Author

Melinda Hill Sineriz has been writing professionally for over 10 years. She worked as an editorial assistant for Forward Movement Publications in Cincinnati, Ohio. She wrote for several years for allmusic.com and edited and wrote a chapter for a book with Wooster Press. She graduated from Miami University in Ohio with a Bachelor of Arts in English. She has a master's degree in teaching.

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