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Last update: July 23, 2024
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Do you know the responsibilities of a cosigner? Learn the pros and cons of having a cosigner and how to release a cosigner from a loan.
By Brian Flaherty, B.A. Economics
Edited by Rachel Lauren, B.A. in Business and Political Economy
Learn more about our editorial standards
By Brian Flaherty, B.A. Economics
Edited by Rachel Lauren, B.A. in Business and Political Economy
Learn more about our editorial standards
Diving into the world of student loans? Getting student loans can be tough, especially private ones. Have you ever wondered why some people find it easier to get these loans? Well, here's the secret: having a cosigner can make things smoother. In this post, you’ll learn what a cosigner is and the benefits of having one.
A cosigner is a creditworthy person who promises to share the responsibility of repaying a loan with the primary borrower. It doesn’t necessarily mean they are paying, but if you mess up, they're promising to step in. This person's solid credit background can be the golden ticket for students without much credit history to get approved for a loan.
If you've ever tuned into a late-night talk show or scrolled through memes, you'd know that being young and in debt is pretty much the 21st-century version of "I walked uphill both ways in the snow to get to school." However, it doesn't have to be that insane.
Private student loans are based on credit, and as a young scholar, you probably haven't had the time to build a credit history that screams, "Trust me, I'm good for it!" That's where a cosigner steps in to give your loan application the boost it needs.
Let's break it down so you can fully understand their role in all this. A cosigner is someone who:
Cosigning isn't just a signature on a piece of paper. It's a commitment you need to honor. Here's the breakdown:
You know that feeling when you score a great deal on tickets to your favorite band? Yeah, having a cosigner can be that good for your interest rates.
Do you like saving money? Well, the higher your interest rate, the more you’ll have to pay - interest rates are the extra charge on top of your loan's base amount. So, get a cosigner to save yourself some cash.
Having a cosigner can lead to lower interest rates because lenders see it as a reduced risk. With a cosigner's good credit history, lenders are more willing to give you a good deal.
Back when I was taking out a loan, I knew that I wouldn’t need a cosigner to get approved - but having one would definitely help my rate. Since my cosigner trusted me to repay everything in full and not hurt their credit, they were glad to help me save a ton of money.
If you're riding solo without a cosigner, it's not the end of the world. You can still get a loan, but you might face higher interest rates. However, as you build your credit and show lenders you're responsible (yes, timely payments matter!), you can potentially refinance in the future for a better rate.
Freeing your cosigner from the responsibility of your loan isn't some mysterious process. Here’s how it goes:
Start by checking if your lender even allows cosigner release. Some do, some don't. Know which camp you're in, and make sure you know before you take the loan.
Most lenders require a certain number of on-time payments before they'll even consider a release. This is your chance to show them you've got your act together.
Your lender will do this, but it's good to know where you stand with your credit. It's like checking the weather before you go out. No surprises.
Each lender has their own process. Some might ask for proof of income, others might want more details.
After you apply, keep tabs on the process. If the lender needs more info, give it to them. If they have questions, answer them. Be proactive.
Before diving into the world of loans, it's important to know the dos and don'ts. Here's a useful table to guide you:
Do research your lender options
Do understand the terms of the loan
Do communicate openly with your cosigner
Do keep track of your credit score
Don't skip reading the fine print
Don't miss payments
Don't forget to consider cosigner release
Don't hesitate to ask questions or get help
Applying for student loans can feel intimidating sometimes. Having a cosigner on board can help, but like everything, it has pros and cons. Let's break them down.
Considering a cosigner for your private student loans? TuitionHero helps you get personalized options and guides you through refinancing. We also assist with scholarships, FAFSA, and credit card offers. Make college finances simple with TuitionHero by your side.
Yes, there are alternatives like building your credit history, applying for loans with less strict credit requirements, or exploring financial aid programs. However, these options may vary depending on the type of loan and lender.
In some cases, lenders may allow multiple cosigners, but each lender has its own policies. It's important to check with the specific lender to understand their requirements and whether they allow multiple cosigners.
Removing a cosigner before the loan is paid off is challenging and often depends on the lender's policies. Discuss the option of cosigner release with your lender to understand the criteria and process involved.
The cosigned loan will probably be considered as part of the cosigner's overall debt obligations when calculating their debt-to-income ratio. This can impact the cosigner's ability to qualify for other loans or financial products.
Understanding what a cosigner does is important when dealing with loans. Whether you're a student or someone looking for financial help, a cosigner plays a big role in getting your loan approved. It's important to talk openly with potential cosigners and make sure they know what they're getting into.
Keep in mind that a cosigner's credit and finances can be affected, so think carefully before asking someone to cosign for you. Make smart choices, explore other options, and handle loan agreements carefully for a strong financial future.
Brian Flaherty
Brian is a graduate of the University of Virginia where he earned a B.A. in Economics. After graduation, Brian spent four years working working at a wealth management firm advising high-net-worth investors and institutions. During his time there, he passed the rigorous Series 65 exam and rose to a high-level strategy position.
Rachel Lauren
Rachel Lauren is the co-founder and COO of Debbie, a tech startup that offers an app to help people pay off their credit card debt for good through rewards and behavioral psychology. She was previously a venture capital investor at BDMI, as well as an equity research analyst at Credit Suisse.
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While you're at it, here are some other college finance-related blog posts you might be interested in.
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