Why People with Bad Credit Need a Cosigner
It is a very big deal to ask someone to cosign a loan for you. When a person agrees to cosign your loan they are basically agreeing to take on a portion of your credit history as their own. This means that if you fail to pay your loan repayments on time or your loan defaults, they will take a financial hit along with you. The mark on their credit history that your failure to pay has caused will stay with them for a long time. In addition, unless you tell them, co-signers have no way of knowing there is a problem with paying your loan until there’s a huge problem. That being said, having a trusted person co-sign your account is often necessary for someone who is struggling with bad credit. Here are four reasons why a co-signer can be beneficial to obtaining a loan as a person with bad credit.
You will Receive a Loan You Normally Wouldn’t Have
When a person cosigns your loan, they are agreeing to put their credit history on the line so that you can secure a loan. If a lender initially doesn’t accept your loan application because of your bad credit, a cosigner will make receiving a loan possible by backing up your debt. If you don’t have a credit history at all it is also hard to receive a loan, even if you are responsible with money, and so a cosigner can essentially give you their credit score, allowing you to receive a loan.
You will Improve Your Credit
Getting a co-signer has the great advantage of allowing you to increase your credit score. By obtaining a loan under a cosigner and making payments on time, you will establish a better credit record, which will help build your score. Be aware that this goes the other way as well, if getting a cosigner allows you to get a loan that you can’t financially afford, and you fail to make payments on time, it will damage your credit score as well as your cosigners.
Necessary to Obtain Your Dream House
A cosigner can be a great thing for homebuyers; because they will allow you to qualify to buy a bigger house then you normally would be able to. This is especially true for first time homebuyers who have little or no credit.
You Will Qualify for a Lower Interest Rate Loan
When you take out a loan with bad credit through an alternative lender, you are subject to an extremely high interest rate due to the lenders higher risk of not seeing a return. But because a cosigner with better credit will provide more reassurance that the borrowed money will be repaid, he or she will help you qualify for a much lower interest rate as well as origination fees. This means you’ll pay a lot less over you loan’s life span.
If you have bad credit or have not established a credit history yet a cosigner has its advantages. As long as you manage to repay your loan there should not be an issue, and you and your co-signer will maintain your relationship.