How many times have you applied for a loan only to be met with a “try again with a co-signer” option? For me, it happened a whole lot when I was first starting out in my credit journey – the era of “fair” scores, student loans, and a ton of rejection letters. Disheartening, certainly, but there was hope in that last bit…the co-signer thing.
What does that even mean, though? I feel like the whole “co-signer” label isn’t very clear at all, honestly, and financial institutions could do a lot more to explain them. That being said, though, I’ll be doing my best to explain what they are and how they work in today’s article.
For now, just know that you can have one for pretty much any type of credit agreement or loan, as long as your lender allows that sort of thing. If you’d like to know more, though, stick around!
What is a Co-Signer?
One thing to keep in mind as we proceed is that there are a few ways to refer to a co-signer, and they can be used interchangeably. Guarantor and co-borrower are just two examples of that, so if you see them, now you know what they’re talking about. Anyway, though, let’s discuss what they are in the first place.
To put it simply, they’re a second person who is added to the contract for a given credit agreement or loan. So, if you are unable to make your payments, the responsibility falls onto them. I know it doesn’t sound very fair at first glance, but you can get more details here: https://www.consumerfinance.gov/ask-cfpb/what-is-a-co-signer-en-745/.
They play this role to allow those who do not have a very strong credit history to still be able to borrow money. When a co-signer is added to an application, their credit score is taken into account alongside the initial applicant. Ideally, they’ll have a fairly high one, which will increase your overall chances of being approved.
They’re there to “guarantee” that you’ll be making your payments, hence some of those other names that they’re called. Most of the time, though, they probably aren’t going to be using the funds that are disbursed. With a credit card, this may not be the case.
Credit card co-borrowers are usually both issued a card and share the same “allowance” of sorts, that revolving door of credit that is allowed with these sorts of accounts. Traditional loans, take a more hands-off approach (at least, more often than not).
Whom to Pick
Obviously, your first consideration here should be to think about who would be willing to be your guarantor, as well as whether or not they’ve got a better credit score than you do. Ideally, theirs should probably be in the “high” to “excellent” range, for best odds. Often, the folks that fall under both of these umbrellas are going to be family members.
After all, there needs to be a distinct level of trust between both parties, making
family members ideal candidates. Don’t worry, though – anyone whom you have a similar relationship with and whom you trust can work just fine. The most important thing is that you are both on the same page in terms of the repayment process and what the funds are going to be used for.
How it Works
Whether you’re looking to refinance with a co-signer or open an initial loan, the process is pretty much the same. Most of the time, especially if you are filling out an application online, there will be an option to “include a co-signer,” or something worded similarly to that. When you see that, you’ll want to make sure to click on it.
From there, you can input the information of your guarantor alongside your own. It tends to work out best if they’re there next to you, but that’s hardly a requirement. You’ll have to provide the same info for both parties in the one application most of the time, but sometimes there is an option to have the paperwork forwarded to them to fill out on their own.
Pretty simple though, right? As I mentioned, it’ll be basically the same if you want to go for a refinancing agreement med kausjonist – just with the additional factor of going for a loan to cover the costs of a previous one and to garner a lower interest rate. In fact, that’s the main
motivator in regard to why a borrower would want a co-signer in the first place for something like refinancing!
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Is it Worth Doing for Refinancing Loans?
Given that it does involve gathering some extra paperwork and a longer processing time on your initial application, you may be wondering whether or not all this trouble is really worth it for refinancing. After all, refinancing a loan is when you’re trying to get a new one to buy out your previous debts in order to get a better deal – so, why complicate it more, right?
I’m sure this isn’t exactly surprising to hear, but a lot of it really does come down to interest rates and how to score the best one that you possibly can. By best, I mean lowest, which is the goal for most borrowers. When you’ve got a co-signer on board with the application who has a higher credit score than your own, you’ve got a much better chance of getting a lower interest rate.
Since most creditors calculate the rates that they’ll offer their borrowers by looking at their credit history, having a guarantor can make a huge difference there. It’s not a strict requirement, but it is good to note that there are many people aiming to refinance their debts right now. Having something in your application that sets you apart can mean that you’ll get approved before they do in some cases.
If your need to refinance is fairly urgent to help ensure that you don’t default on any of your debts, that’s another reason to call upon a co-borrower. As I said, they can give you an edge in terms of how fast your paperwork is processed and whether or not it’s a “yes” from your lender in the first place. Of course, you’ll just need to be honest with them about why you are looking for their help, here, to avoid any misunderstandings.
While there is a certain level of risk to having a co-signer (namely that they’ll share the responsibility for paying the debt back), there’s no doubt that it’s worth it for all sorts of loans and debts. Both of you can build your scores together.