Things to Know about Co-Signing a Loan

You have heard it so many times. All the things you need to do to get a loan, a new credit card, a new line of credit, and on. 

But how many times did you find anyone telling you about how to go on about becoming a co-guarantor or co-applicant for a loan? Lenders focus on attracting you to get the loan, and since most of us are more interested in getting loans than in learning about being a co-guarantor, there is comparatively less content online that deals with this subject.

In this article, we are going to break the trend.

Co-signing a loan and becoming a co-guarantor is a noble thing to do. You are helping someone you care about. But just like when taking a loan yourself, you need to be careful here as well. There are several things that you need to know while co-signing a loan with someone else. Co-signing means you too are responsible for the payment of the loan, especially if the other person is unable to pay up. Thus, it is risky for you just as if you had taken a personal loan.

So here’s what you need to know:

1. Your loved one needs a co-signer because they don’t qualify for the loan: Let’s face it. The real reason someone is asking you to be a co-signer with them is that they’ll be unable to get the loan otherwise. They don’t have a high enough credit score, and the banks don’t see them as creditworthy enough. With you in the picture though, banks will say yes to the loan application.

2. You won’t benefit from the money: Here’s another bummer! The loan is not for you, which means you can’t use it. It’s just another added responsibility from your side to repay the loan if the primary borrower is unable to do so. You can’t use the money for your own use, pay the bills, buy things, etc. 
   

3. The loan will affect you: The loan will affect you if you can’t pay the EMIs on time, or at all. Yes it’s sad. You don’t get the loan, but are in charge or repaying it if the primary borrower is unable to repay the loan. If your co-signer is not able to, you’ll have to give the EMIs on time. Miss the payments and your Credit Score will be affected. This in turn shall affect your taking loans in the future yourself. 

4. Your debt increases: When you are a co-signer to a loan, your debt ceiling increases. This means that you may not be able to take too many other loans yourself until this credit line has been repaid.

5. You’ll be responsible for the repayment: Even if your loved one can’t pay back the loan, you’ll be responsible for it since you’re the co-signer. 

Think several times whether you really want to be a co-signer or not. Consider the risks and make an educated decision.