A cosigner of a loan is someone who signs off on a loan in addition to the primary borrower, and is frequently required in cases of poor or complete lack of credit history. A cosigner is equally responsible for the balance of the loan if the primary borrower fails to make payments.
No Credit History
Loans typically require that the borrower have a certain number of years of continuous employment, a certain amount of current income and an established credit history. A cosigner may be required for individuals with insufficient work and/or credit history to obtain a loan.
Poor Credit History
If you have poor credit history due to late payments, defaulting on previous lines of credit or other reasons, a cosigner may be required to obtain a loan. Repaying the loan in a timely manner can help rebuild credit.
Interest Rates
Having a cosigner can significantly reduce the interest rates and fees associated with a loan, especially if the cosigner has excellent credit. This reduces the overall cost of the loan, since less money will need to be paid toward interest during the repayment period.
Disadvantage
If the borrower is unable to make payments on the loan due to job loss or other reasons, the creditor is likely to attempt to collect the balance owed from the cosigner. This may add a significant amount of stress to the relationship between the borrower and cosigner.
Excellent Credit
If you have excellent credit, obtaining a cosigner is likely unnecessary and will likely have little benefit for you in terms of reduced interest rates, lowered fees and other savings. Adding a cosigner with worse credit than you can have a negative impact on interest rates and other terms of the loan.
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