There may be a situation where you may need an additional fund in the form of a personal loan to meet some of your needs. The lending institution may ask you to provide a cosigner for processing your loan application. The reason for the need for a cosigner may be of many types. The most common reasons as to why you may need a cosigner are as under:
- Bad Credit Rating
- Low Income
- Inadequate Credit History
What Is Cosign For A Loan?
To cosign means signing the loan document jointly with the primary borrower. It is a process of joint credit. By co-signing the loan document, the person signing thus takes on the legal obligation to repay the loan in case of any default from the borrower. This works as a risk-mitigating factor for the lending institution. In case the borrower fails to service the loan properly, the credit score of the cosigner takes a hit as well.
How Do You Choose Your Cosigner?
Technically speaking, a cosigner needs to have creditworthiness and adequate income to cosign your personal loan document. But there is something more than what meets the eye. The trust factor between you and your cosigner is the prime implied condition for you to choose a cosigner for your loan. After all, he is going to be ominously responsible for standing in if you fail to honor your loan commitments. However, if he is not trustworthy, the collaboration will not work.
How To Ask Someone To Cosign For A Loan?
While mutual trust is a key factor between you and your cosigner, and it implies that the cosigner is known to you and is your well-wisher, there are certain protocols that you are to follow. The tips for the same are given below:
- Explain The Reason For Opting For The Loan: The person who has agreed to be the cosigner for your personal loan must have an emotion of an obligation towards you. This feeling prevails over the risk of being a cosigner and its possible downsides. Therefore, you owe an explanation to the cosigner as to why you want this personal loan.
The reason for opting for a loan may vary from a student loan for higher education, cosigning a motor vehicle loan. But you should let your cosigner know the reason for this loan in return for the favor that he is doing to you.
- Clarify Legal Obligation Of The Cosigner: The legal obligation of the cosigner in the case you default on the personal loan should be made amply clear to him. This is very important as any irregularity in terms of repayment of the loan shall adversely affect the cosigner.
- Discuss Unfortunate Eventualities: There may be some unforeseen circumstances in the future due to which you may not be able to service the personal loan. However, it will be wise to have this discussion with your cosigner beforehand.
One of the promises that you may make to your cosigner is to declare the moment you feel it is becoming difficult to service the personal loan. The cosigner may not agree to stand in and honor your commitments, but a prior discussion shall reduce further complications in the future.
The fundamental pillar on which a relationship between you and the cosigner will stand is a transparent exchange of information. You and your consigner need to be on the same page to avoid any confusion at a later stage.
You may be needing a cosigner to get a personal loan from a lending institution. As a borrower, you need to ensure that you get the best Personal Loan interest rate. For ascertaining the same, you may access an online Personal Loan EMI calculator and find out what is going to be your monthly liability. That will help in financial planning before taking on the burden loan.