How to Co-Sign a Loan

Many people —particularly young adults— need a loan but don’t qualify for one. Perhaps you are in the same boat. You might need to borrow money from your bank in order to go to college or university, buy a new car or get a mortgage for a new home—but you either have a bad credit history or insufficient income, or both. Consider finding someone to co-sign a loan with you. A co-signer, also known as a co-applicant or co-borrower, accepts the responsibility for repaying the debt along with the primary borrower (you). He or she acts kind of like a “guarantee.” If you can’t make the loan payments, your co-signer must. What are all the steps involved with co-signing a loan? First of all, before going through the steps, ensure you are financially prepared. Using a co-signer does not equal your loan getting paid off for you—unless you want to lower your credit rating even more and possibly harm a trusted relationship.

Instructions

Difficulty: Easy

1. Determine exactly how much money you need to borrow for your loan. Don’t overestimate the amount, but make sure it will be enough to cover whatever you need it for. Also, make sure you can afford the loan amount and pay it off in the allotted time.
2. Find an appropriate and responsible co-signer. You want someone you know well, that you trust, and who is very reliable. They will also need to have good credit, a relatively high and stable income and be willing to take a risk in co-signing. For most young adults, an appropriate co-signer is a close relative, such as a parent or older sibling.
3. Together with your chosen co-signer, fill out all the paperwork required to apply for a loan. You will both need to fill out an application form, as the lender will need to check the co-signer’s credit history and income claims.
4. Make sure you both understand all the terms and conditions involved with the loan. For example, consider the loan amount, the length of time to repay it, the monthly payments, and whether the co-signer will need to give collateral.
5. Wait for application approval and acceptance from the lender.
6. Make your loan payments in full and on time. If you miss a payment, you are not only affecting your credit, but you are also jeopardizing your co-signer’s credit.
7. Always keep your co-signer up to date with the status of your loan repayment and your financial situation. If you know ahead of time you won’t be able to make the next payment in full or on time, tell your co-signer right away so they are prepared.

Tips & Warnings

• Choose a co-signer carefully. Not just anybody will do. Some parents are not financially responsible and would make poor candidates.
• Find out if the loan will ultimately benefit your credit rating and not just the co-signer’s. Some loans are designed to only benefit the co-signer, not the original applicant. Make sure your credit will benefit from all the loan payments you will make.
• Getting a co-signer should only be used as a means to get a loan you would otherwise not qualify for. Be fully prepared to pay off the entire loan yourself.