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Finding a Cosigner

4 Tips for approaching a potential cosigner for your loan

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Has your lender asked that you find a cosigner for your loan? This is a common practice for young borrowers and those without a long credit history.

It is common for borrowers to ask a parent, older sibling, or close friend to cosign their loan. But before you approach someone and ask them for this favor, you need to understand what you are asking. If you stop paying on the loan, the cosigner will be responsible for making the payments. Asking someone to take on this responsibility can be a lot—so you will want to follow the tips below when approaching cosigners.

1. Prove you are able to pay.

If the bank asks for a cosigner, it is because they are not confident you will be able to pay back the loan on your own. In reality, you may be fully capable of paying. Maybe you have a great job, but you just have not borrowed money in the past, so you don't have a credit history. Or perhaps your credit score is low due to some complications with a past divorce, but now you're financially secure again.

Since the bank thinks you're a risky borrower, you will want to prove to your cosigner that you are not. Show them proof of income or a copy of your budget to reassure them that you won't default on the loan and leave them with the debt.

2. Show them the terms of the loan. 

A responsible cosigner will want to know the terms of the loan they are signing. So when finding a cosigner, bring along a copy of the terms of the loan you want to take out. Make sure you're able to show them the interest rate, borrowing period, monthly payment, and origination fee. If the bank will give you a copy of the actual loan agreement in advance, take this with you for your potential cosigner to read.

3. Offer options.

In case your cosigner is not a fan of the initial loan you are considering, it's worth researching your other options. Is there another bank that will issue the loan, perhaps with a shorter payback period that your cosigner is more comfortable with? Have a few of these options ready to present if your cosigner asks for them.

4. Be understanding if they say "no."

Understand that you are asking a great deal of your cosigner. Signing your loan will affect their credit score and their debt-to-income ratio, which may limit the amount they are able to borrow in the future. If you miss a payment, it might impact their credit score, and if you stop paying, they'll owe the full amount of the loan, which can be sent to collections. It is completely reasonable for someone not to want to cosign a loan, even if they love you and trust you. Be prepared for the possibility that your first-choice cosigner will say "no," and think of some other people who you feel comfortable asking.

Finding a cosigner is not always easy, but it is often your best chance at getting a decent interest rate as a new borrower or someone without a great credit score. If you are ready and able to prove you can pay the loan, friends and family members will often be willing to help you out. Then, once you get the loan, be especially careful to always make full, on-time payments, so you don't leave your cosigner in a lurch.

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