Applying for a loan using a co-signer boosts one’s chance of qualifying for a loan. If you do not have a credit history or an income, make sure to get a co-signer to be eligible for a personal loan. A co-signer is a person who can stand in legally for a borrower for a debt incurred. It can either be a friend or a relative, but he or she should have higher loan qualifications that you.
Advantages of Applying for a Loan with a Co-signer
In most cases, personal loans are usually unsecured, unlike other loans as mortgages that usually have collateral. It means that personal loans are risky for lenders. To reduce the risk of possible losses for personal loans, lenders charge higher interest rates.
Therefore, the main advantage of applying for a personal loan with a co-signer is that the lender will charge a lower interest rate since the risk of possible loss is smaller.
Besides, when you apply for a loan with a co-signer, you also improve your credit score. For instance, getting a loan with a credit score can be challenging and consequently, if you don’t get a loan, you cannot demonstrate responsibility for a loan. When you get a loan with a co-signer, you can qualify for a loan with poor credit scores and when you repay, you improve your credit score.
Disadvantages of Applying for a Loan with a Co-signer
The disadvantages of applying for a loan with a co-signer often affect the co-signer.
If the borrower defaults in loan repayment, the co-signer is responsible for repaying the loan. A co-signer assumes the responsibility of the loan as if it is their own.
Consequently, the co-signers credit score gets hurt. When the borrower defaults in loan repayment, the negative credit history appears on the co-signers history as if it were their loan.
Even as you seek a loan with a co-signer, be careful not to go for loans with high interest rates. Also, payday loans are relatively expensive and can end up hurting your credit score further or make you get into a more financial crisis. Nevertheless, getting a loan with a co-signer is relatively cheaper due to low-interest rates. It can also help you to improve your credit score.