A cosigner, also called a guarantor, is a person who promises to discharge someone else’s debt in case the borrower abdicates responsibility. Cosigning is easy because it involves only a signature, but it includes a serious commitment. Repercussions of failure on the part of a borrower would affect a co-signer as well because co-signing will appear on the cosigner’s credit report and could pull their credit points if they had to settle the debt because the borrower washed their hands of the payment.
A guarantor can be anybody, though; they are usually a family member or a close friend. No third person who is a mere stranger to you would ever feel inclined to enter the contract as a guarantor. It is not compulsory to have a co-signer whether you take out a small loan or a large loan, but when your repaying capacity is suspicious, the whole scenario gets changed.
If your income is low, lenders would ask you to arrange a guarantor. A co-signer must have a good credit rating. However, apart from this, their income sources would also be checked. After all, they will be called on if you fail to pay off your debt in fell one swoop.
Benefits and drawbacks of having a cosigner
Here are the advantages and drawbacks of having a cosigner:
It is easy to qualify for a loan
Getting a loan approved is not easy at all. You must have a good credit score and strong income sources. Most of the time, lenders ask for a guarantor when you need a car, a mortgage, or any other secured loan. Large loans are riskier than short-term loans. There is never a guarantee about your financial circumstances.
You may lose your job at any time. Chances are you fail to repay your debt. In order to minimise the risk of default, lenders expect you to arrange a cosigner with a good credit rating. With the help of a guarantor, your chances of being approved become high. Lenders have the right to call on a cosigner to settle the debt if you fail to meet your obligation.
Car loans involve a large amount of money, and therefore, you must have a good credit rating, but if your credit rating is not stellar and your income sources are not much, you will need a cosigner. With the help of a guarantor, you can have your application approbated.
However, experts suggest that you should look for cheap car loans in Ireland by approaching a reliable private lender. Interest rates vary by lender. Make sure that you compare them before applying for a car loan. It is not a wise move to grab the first offer. You should try to choose a lender who provides these loans at lower interest rates. This will reduce your chances of falling behind on payments.
It could help improve your credit score
Every loan that you repay over an extended period of time helps you manage your credit rating. Car loans with a cosigner will also ameliorate your credit rating because payments are made over a period of time. Small loans such as payday loans cannot increase your credit rating because they are discharged in fell one swoop. It does not give clarity about your financial commitment and loyalty.
If you want to improve your credit score, you will have to show your lender that you stay committed to payments despite a fluctuation in your income. It is likely that you lose your income down the line. You must have earmarked cash to continue to pay down the debt. With car loans, you can easily prove your financial commitment and loyalty if you manage to make all payments on time.
If you fail to clear the debt on time, you cannot expect to see improvement in your credit score. Most of the lenders wait until 30 days to inform credit reference agencies if you fall behind on the payment, but you cannot avoid late payment charges. Problems escalate when you miss a couple of payments.
Cosigner can help you qualify for a loan when you are unemployed, or your income is low
Another benefit of having a cosigner is that you would be able to qualify for a loan when your income is not so stellar. A cosigner reduces the risk of a lender. Lenders have the right to call them on in case of default, and therefore, they most likely sign off on your application.
A cosigner can also help you qualify for a loan when you are unemployed. For instance, there are some lenders who provide guaranteed car finance for the unemployed in Ireland. If your guarantor has a good credit rating and a great income, they will likely help you get the nod. However, it is possible only when you have an offer letter from your employer. Apart from that, you must have a side income source to make payments unless you start your new job. You must be earning enough money to pay off your debt.
Your relationship will be affected
Lenders will call on your cosigner when all means of collecting money from you are exhausted. The guarantor is a last resort. Bear in mind that they will lose their credit points if you fail to discharge the debt. As cosigning appears on their credit profile, they will suffer from it for a couple of years. Their chances of borrowing money at lower interest rates are quite low.
Your irresponsibility could also affect your relationship with the guarantor, so it is recommended that you arrange a cosigner only when you are completely sure about your repaying capacity.
The final word
A cosigner can help increase your chances of being accepted for a loan despite low-income sources and a bad credit rating. However, you must remember that if you fail to discharge your obligation, your guarantor will be responsible for settling the debt. This will not only affect their credit score, but it will also ruin your relationship with them.
