How to Consolidate Loans Using a Cosigner

Consolidating loans is an effective way to save money and speed the process of repayment. However, if your credit has been negatively affected by poor payment history and exorbitant credit, you may need a cosigner to accept full responsibility for your new loan. A cosigner loan is not always an option with all lenders, so it's important to research the process before applying.

Difficulty:

Moderate

Instructions

Things You'll Need

• Loan statements Income statements

1. Find a cosigner. Being a cosigner is a considerable responsibility. Essentially, a cosigner is agreeing to "vouch" for a consumer and take responsibility for a loan if it becomes delinquent. The cosigner is just as obligated to repay the loan as the primary borrower. Usually cosigners are family members---parents, siblings or children.

2. Find a lender that accepts cosigners on loans. These types of loans carry a greater risk for the lender, as the need for a cosigner speaks to the creditworthiness of the primary borrower. Depending on the size of the consolidation loan, a bank or local credit union may accept a loan; however, usually these institutions will require a cosigner and some form of collateral (car, boat, land).

3. Think carefully about asking a close friend to cosign a loan for you. Studies by the Federal Trade Commission show that 75 percent of the time a cosigner ultimately ends up being saddled with payments. Using a friend as a cosigner may put strain on a friendship---especially if you default on the loan and your friend ends up paying for your debts.

4. Prepare for a financial examination of both parties. When the lending officer looks at a consolidation loan application, she scrutinizes the debt and credit rating of both borrowers---not just the cosigners. If your credit rating is extremely poor, you may not be qualified for a consolidation loan---even if your cosigner's credit is stellar.

5. Make a payment plan for yourself if you sign a loan with a cosigner. Make a commitment to make payments on time and get back on the path toward financial health---needing a cosigner on a loan can be an embarrassing prospect.

References

• FTC and Cosigning