what does it mean to cosign a loan

Best answer

When you co-sign a loan, youpromise to pay off somebody else’s debt if the borrower stops making payments for any reason. This is a generous act, as it can help a friend or family member get approved for a loan that they otherwise wouldn鈥檛 qualify for. But it鈥檚 also risky to guarantee a loan for somebody else.

People also ask

  • What is a co-signer on a loan?

  • When you co-sign a loan, you promise to pay off the loan in the event the primary borrower is unable to pay off the loan. A co-signer becomes necessary when the person applying for the loan doesn’t have sufficient credit history, reliability or income to get the loan on his own.

  • Should you say no to cosigning on a loan?

  • The risks of cosigning outweigh the benefits, no matter how honorable your intentions. Saying no to someone you鈥檙e close with may put a strain on your relationship for a while, but that鈥檚 nothing compared to what massive debt and ruined credit history will do to a relationship. Take a look at a few instances where you should say no to cosigning.

  • Does co-signing a loan affect your credit score?

  • Consider what co-signing a loan will do to your credit score; this loan will appear on your credit report. If you plan to take out a loan yourself in the near future, you may not want to co-sign now as it will increase your apparent debt load and could potentially hurt your ability to be approved.

  • Do I need a cosigner to build credit?

  • While there are many ways to build credit, when you need a loan and you鈥檝e got limited credit, a cosigner is your best bet. Typically, cosigners are used by teens or young adults who are taking out college loans or signing a lease on their first apartment.

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