Before a lender would process and approve your application, he/she will require you to submit several requirements such as identification documents, income statements and so on. Aside from these, the lender will also get a copy of your credit report.
All these documents are necessary for the lender to determine whether you are capable of paying back the loan or not.
Now if the lender decides that you do not qualify for the loan based on your income, credit score, debt-to-income ratio or any other reason, there are things that you can still do.
One of these is to get a cosigner. But before you jump right into this option, you need to know all about cosigning first, and how this works.
What is a cosigner?
A cosigner is a person who is willing to back you up on the loan that you are applying for. He/she agrees to pay off the debt in the event that you are unable to do so. He/she will appear before the bank with you to sign the loan application form, and makes a guarantee to shoulder your payments in your place when you can no longer fulfill your financial obligation.
Why do you need to get a cosigner?
Having a cosigner gives you a higher chance of getting approved on your loan application. Lenders see this as a lower risk loan, because there is another person willing to take on the loan if the first one is unable to make the payments. Because of the lower risk, the lender is usually more likely to offer lower interest rates, lower fees and a more flexible payment schedule.
Looking for a cosigner
This is probably the most difficult part about this whole process—finding someone who’ll be willing to take on the responsibility when things get tough. Of course, the first place you will have to look into is with your family and friends. People who care about you are the ones who are more likely to help you out. You should also start asking help from those whom you know believe that you will do everything to repay the loan.
Aside from these, consider getting help from people who have the following:
- People with strong credit history
- People with high income
It’s never a good idea to get a cosigner who does not have credit history or who has poor credit score. You also can’t possibly rely on another person who does not have any income. How can he/she provide a safety buffer if he/she does not appear to be credit worthy, right?
It is also possible that no one will be willing to be your cosigner. You have to understand that the risk is too great for some people. And that even though they think you will not default on payments on purpose, they might still not be comfortable putting their finances at risk.
If you do find someone who’s willing to take the risk for you, do not lose their trust. Make sure that you pay off the loan and that you do not miss out on any payment.
Alternatives to consider
If you’ve done everything you can, but you still cannot find anyone who’s willing to sign the dotted line with you, consider these alternatives:
- Improve your credit score – If your credit score is the reason that your loan application is not approved, why don’t you take the time first to improve it? Be current on your payments, and reduce your credit card debt.
- Use collateral – Pledging collateral for your loan will also more likely to get you the nod from the lender than if you apply for unsecured loan.
- Borrow less amount of money – It is possible that you are borrowing money that’s more than what the lender think you can afford. If you cannot work your way to increase your income, the next best thing to do is to reduce the amount that you will borrow.
Getting a cosigner is an effective way to increase your chances for loan application approval. But the whole process of finding one who is willing to take the risk for you is not going to be easy. Consider alternatives if you cannot find a cosigner.