Have you been asked to cosign a loan for a friend or family member? Cosigning a loan is a serious responsibility that should not be taken lightly. For this reason, it’s important to understand what the process involves and the cosigner requirements you will have to meet to qualify.
So what does it mean to cosign a loan?
In a nutshell, you are taking on the responsibility of repaying the loan should the primary borrower default. By signing on the dotted line, you are agreeing to not only take responsibility but to also have your credit affected if you don’t repay the loan.
If you are considering cosigning a loan but are not sure you qualify, here are the requirements most lenders look for in a cosigner.
Good or Excellent Credit
If you are thinking of cosigning a loan, you need to have good or excellent credit. Your creditworthiness and credit score are determined by the amount of debt you have, your payment history, the length of your credit history, and the type of debt you have. If your credit score is 670 or higher, it falls in the “good” range.
Positive Payment History
To get a loan with a cosigner, the cosigner must have a positive payment history. This is important because your payment history shows how you handle your debt. If your payment history is positive, you are not a credit risk to the lender.
Qualifying Income
When you are applying for any loan, the lender will want you to have a certain income coming in. This is no different for a cosigner. Your income needs to show you can pay the loan back if necessary.
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Clean Background
As a cosigner, you should be able to pass a background check. Financial institutions typically look for poor credit history and any other credit-related problems. Your background will be checked for evictions, financial fraud, and similar issues.
Willingness to Pay
If you are wondering how can a cosigner get out of the loan, the answer is, they can’t. This is why a requirement of a cosigner is a willingness to pay the loan if the primary borrower defaults. Expect to sign paperwork confirming your intent to take on the responsibility for the payments.
Overall Stability
Overall, the lender will look for stability in a cosigner. This includes your job, your home, and your credit. A stable and well-established cosigner reduces the risk for the lender.
These Are the Cosigner Requirements You Should Know About
If you meet these cosigner requirements, you will be able to cosign a loan. You should have good or excellent credit, a positive payment history, and a qualifying income.
You should also have a clean background, be willing to pay, and have stability in your life. If you are considering cosigning a loan, these are the requirements you should know about.
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