What To Know Before Becoming A Cosigner

Credit & Finance

Being a cosigner is a massive financial responsibility and you should do your research before making this massive decision. Most financial cases of cosigning occur with people who apply for loans but don’t have the financial credibility to be granted.

The cosigner acts as a responsible party if the person borrowing the loan doesn’t make payments for the loan making this a big responsibility for cosigners. In most cases, someone personally close to you may ask you to cosign on a loan that helps to increase the chance of being approved for the loan.

You might feel inclined to help someone close to you but there are a couple of things to consider before agreeing to be a cosigner for your best interest. The first consideration is whether you can trust the person you’re cosigning to fulfill their financial responsibilities because you will become financially obligated to fulfill their responsibilities.

Cosigners will often take this financial responsibility for a friend, family member, or spouse/partner. The process of cosigning starts by providing the bank or lender with your personal information like paycheck stubs, bank statements, tax returns, etc.

Cosigners will also have to complete the loan application and agree to the loan terms that are finalized when signed. Another thing to know about cosigning is that you won’t have any form of ownership of the asset that requires the loan. There are a couple of cosigning-related statistics that should be considered based on the experience of cosigners:

  • 38% of cosigners had to pay all or some of the loans they cosigned as a result of the primary borrower failing to pay according to a survey by CreditCards.com.
  • 21% of cosigners support a friend.
  • 45% of cosigners support a child or stepchild.
  • 26% of cosigners claim the financial implications damage a personal relationship.
  • 90% of borrowers for private student loans who applied for a cosigner release were rejected.
  • 28% of cosigners’ credit score was impacted due to late or skipped payments.

There are cases where cosigners have become financially obligated for missed loan payments that ruin credit scores and reports, ruins relationships, and cosigners being stuck paying off the entire loan amount. Though there are some bad cases of cosigning, everyone has a different situation that determines whether you should cosign.

You need to make sure you’re committed to being a cosigner as there are virtually no options to get out of this financial obligation. One potential option (depending on the situation) is refinancing the loan to be removed as a cosigner, but the original borrower has to apply and agree to the terms for refinancing.

There are certain situations that make refinancing not an option like decreasing value, a person’s financial situation getting worse, changes in the economy, etc. In some cases, the original borrower can refuse to refinance because they lose the ability to have the cosigner pay their bills. If the original borrower agrees to refinance the lender has the final say on whether they will refinance.

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