Loan cosigning is a very common thing to see. It might sound rare, but it happens to be highly common. Loan cosigning is a process where a person with a good credit history helps someone who does not have that good of a history with loans and finances. As you can expect, such a loan requires a lot of trust to be signed. This is why it is commonly seen amongst families and good friends.
Because of the immense risk involved, and the idea of sharing loans, many people advise against cosigning loans. In fact, there are a number of misconceptions about cosigned loans, with many people not fully knowing or understanding what a cosigned loan results in.
Much like anything else, cosigned loans have their own benefits and disadvantages, and understanding them is the key to your decision.
What is a Cosigned Loan
There are many cases where an individual with a bad credit history happens to be rejected for a loan. Normally, individuals with a non-appreciable financial history are not entertained for loans. This is where loan cosigning comes in. Loan cosigning essentially involves a person with good credit history obtaining a loan for someone who cannot do it himself or herself.
The person who signs a contract has full responsibility for the loan. Let us take a look at the good and the bad of cosigned loans.
Advantages of Cosigned Loans
Cosigning loans can lead to a number of benefits. These benefits include:
Helping Out Someone Close In Need
With cosigning a loan, you can help someone very close to you who happens to be in need. This can be a family member, a friend, or an associate; in each case, you happen to be helping them with something major. Loans can be taken for countless reasons and as a necessity for some people. If someone is being rejected for a loan because of bad credit history, his or her life might end up being affected. A cosigned loan can do wonders in helping them and improving their lives as well.
Build a Good Credit History
Cosigned loans are a great way to improve your credit history. If you think this is only true for the person being helped out, that is not right. As both people are linked to the loan, good payments will lead to improvement in credit for both of them. It is a great way for the individual with bad credit score to improve their credit history.
Lower Interest Rates
In the off chance that a person with bad credit history does obtain a loan, loans have huge interest rates that are hard to match. However, with a cosigned loan, the interest rate is standard and can be paid off without much of a hassle.
Avoiding Loan Predators
Many people facing trouble with loans can fall prey to immoral loan sharks who feed on their weakness. By getting a cosigner, those loan sharks can be avoided and a person can obtain and pay off their loan in an appreciable manner.
Disadvantages of Cosigned Loans
As with anything, cosigned loans come with some disadvantageous along with the good ones. These bad aspects include:
There is no Material Benefit to the Signer
Since cosigning a loan is helping someone, it can be considered as a sort of goodwill. There is no material benefit at all to the person who signs the loan and instead, they have to face the hassle that surrounds a loan.
The Signer is Solely Responsible for the Loan
Since all the documents have your signatures, you are the one responsible for the loan. In any unfortunate circumstances, all the blame will come directly to you instead of the person you obtained the loan for.
Inability to Get More Loans
Since you already have a loan because of the cosigned one, you may not be able to obtain more loans afterward. Hence, plan everything in your immediate future out before you cosign a loan.
You Have to Take Care of the Payments
Since all of the responsibility is on your shoulders, you naturally need to take care of every single payment. Not only do you have to pay the entire loan, but you also need to keep track of the payments. This can be quite nerve-wracking and time-consuming.
In conclusion, cosigned loans have a number of positive and negative aspects. You need to look at all of them carefully before you make a decision about getting one.