When an instant loan is applied for both the co-signer and co-borrower are equally responsible for the loan taken. Why is it so? If the borrower fails to make a repayment, the co-signer will be held responsible for payouts.
3 Smart Things to know before Cosigning a loan
Let’s center our focus towards the 3 smart things to know before cosigning a loan:
- A co-signer should be fully sure to own loan responsibility, in case of defaults. This must be free of any unnecessary commitment to be a co-borrower. The co-signer will only pay up in the event of a default, not otherwise. So, it’s important to base the co-signing arrangement on trust & transparency that the borrower will pay when required.
- A co-borrower is reckoned as the co-owner & share the loan proceeds along with the undertaking to pay the due EMIs. Also, realize the benefit of tax deductions, if any applicable. Since, both the co-signer and co-borrower are responsible for the loan. So, if the borrower cannot afford to repay on time, the co-signer will have to assume the load.
- A co-signer is obliged to take complete risk of the loan without enjoying any benefits of ownership or right to assets. A small default will also show up on the co-signer’s CIBIL credit report or score. A co-signer cannot attempt to get its name struck off from the loan when it is still falling due.
When does the idea of Cosigning sound logical?
Undoubtedly, cosigning a loan can be tricky, but it can turn out fruitful if done carefully. Cosigning only benefits when it’s among close family & friends. Typically, parents sign up as co-signers for their children when they want to apply for an education loan else Personal loan. Or it could be between married couples who make a property investment together & also share the payments.
Cosigning as a proposition is logical if someone’s trying to stand up on their own. Maybe someone who’s unemployed but requires a car to go around for interviewers and all. So here a cosigner will work brilliantly well. This could end him up with a secure job soon & make monthly repayments.
The concept of cosigners is generally based on ad-hoc situations. They do not have to make repayments for the loan taken, instead can choose to pay a part of the loan if the debtor allows.
What are the Possible alternatives to Cosigning?
If you fail to find a cosigner or are cognizant of the risks of having a co-signer, then the below highlighted alternatives can be considered to get money:
- Pep-up your down payment: If you need financial assistance and cannot find a co-signer then its best spare a little more as down payment on your loan. This will help you to reduce your monthly payments & make a hefty initial investment. This will substantially help your monthly budget.
- Improve your credit: It’s mostly the poor credit score of an individual, which leads to all the struggle. Start by building your credit score to a point where lenders will happily provide loans. You can build your credit score by making timely bill payments, credit card debts, etc.
- Support with collateral: You may offer to provide collateral in exchange of your loan. If this arrangement suits you okay, then think of your car or home as the collateral. And just understand that if you miss to pay back your loan amount, then you will end up losing your collateral security.
