Today, the financial market has opened several avenues by which you can get a loan. But getting a loan comes with a lot of formalities and responsibilities. Moreover, every loan is subject to terms and conditions, such as having collateral, an optimum credit score, and a certain level of financial income.
Having a good income is essential before getting a loan. But what should you do if you do not have the desired income to qualify for the loan? What should you do? Is there any alternative, or are your chances of getting a loan negligible? You would be happy to know that you can get a loan with low income if you have a cosigner. But who is a cosigner, and how can they be of help? Read this blog to know more about them!
What is a cosigner?
A cosigner is a person who agrees to repay the loan debt if the actual borrower fails to do so on time. Cosigners make it easier for you to get a loan even when you have a low income. Usually, a family member or close friend can become a cosigner. By cosigning a loan, the cosigner agrees to take equal responsibility for paying the debt if the borrower fails.
How does a cosigner impact your credit?
Co-signers do not affect your credit. Whether you take a loan yourself or along with a co-signer, you will have the same impact on the credit score. Lenders usually conduct hard credit checks while assessing your case, and this can reduce your credit score by up to 5 points.
Moreover, getting a co-signer improves your chances of getting a loan. Moreover, if you make payments on time, this also boosts your credit score. Since your payment history is a crucial factor in determining your credit score, you must make all your loan payments on time to keep your credit score high.
On the other hand, getting a loan with a cosigner also impacts their credit score. Since this loan will be added to their credit history, any delay in payment will reduce their credit score.
When should one use a cosigner?
Getting a cosigner is an important decision. Even when you plan on getting a family member or a loved one to cosign a loan, it can strain your relationship. Thus, you must only consider getting a cosigner when you are confident about paying off the loan debt in time, or there is a lesser chance of qualifying for the loan individually. You must get a cosigner in the following cases:
1. You have a bad credit score
Having a credit score of more than 750 is ideal for getting a loan. Your credit score is considered poor when it is 580 or below. In such situations, getting a loan on your own becomes difficult, as the lenders want someone who has a good score. Therefore, having a cosigner, in this case, makes sense.
2. Your minimum income does not match the loan condition
A lot of lenders set a minimum income limit for borrowers. This is to ensure that the borrower can pay off the loan. However, if you do not match the minimum income requirements, you can use a cosigner to get your loan sanctioned.
3. You have a high debt-to-income ratio
A debt-to-income ratio is the amount of debt you have to repay versus the income you have. The higher debt you have than your income, the lesser the chances of getting a loan. In such cases, you can consider getting a cosigner.
4. You have no fixed income source
If you are self-employed or have recently started your business, chances are that you may not have a steady or fixed source of income. In such situations, the lenders might reject your loan. You can use a cosigner here.
5. You are young with limited credit history
Even when you have a solid income source and a good credit score, your minimal credit history may become a barrier. This usually happens with young people who are just starting a business. Thus, having a cosigner helps here.
Conclusion
When looking for a cosigner, you must carefully consider to whom you assign such responsibilities. Choose someone who has a close relationship with you. Keep in mind that if you get a reliable cosigner, always remember to be completely transparent about the terms, amount, interest rate, and every other detail related to the loan. However, if you cannot find a trustworthy cosigner, you can try to build up your credit score to get the lender’s approval.
How do you feel about using a cosigner?
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