Cosigning Loans

June 25, 2009

If you’ve been trying to rebuild your debt for any period of time at all, you’ve no doubt tried to secure a loan. And if you’ve tried to secure a loan, you’ve probably run into some difficulties; this is just the lot of the person with bad credit, no matter how good our intentions might be in trying to reestablish our financial credibility.

Of course, during some of these loan application processes, you may not have been turned down outright; perhaps you were told that you could be approved for a loan on the grounds that you acquired a cosigner. Just what is this all about?

Simply put, a cosigner is someone who is willing to accept responsibility for a loan along with you. They sign the necessary paperwork stating that if you default on your loan, they are equally responsible for paying it back, or else *their* credit is on the line.

Why would anyone do this? Well, you can easily imagine yourself being in a situation when it might have come up. Perhaps your friends or family needed help with some kind of business venture they were embarking upon, or perhaps your child needed assistance in financing their first vehicle. Whatever the case, there are many compelling personal reasons why someone might choose to cosign on a loan despite the risks involved.

Of course, at this point, you’re probably asking yourself – what good does this do me? My credit is already atrocious and only a fool would be willing to risk their own financial livelihood to help me out by cosigning on a loan! Well, there’s probably some truth to this. It’s small consolation to a person looking for a loan to get out of debt to just tell them they are approved… if they can find a cosigner.

But there’s another side to cosigning that’s not often revealed. The whole point of a cosigner is to bolster the sum total credit rating that’s going into any loan application being considered. Look at it this way. If you had a credit rating of 800, and you applied for a loan, you would almost certainly be approved, and perhaps even be offered even more than you asked for upfront. However, if you had a credit rating of a miserable 400, you’d be hard-pressed to find anybody willing to extend you any credit whatsoever. This much is obvious.

But imagine if you, with your 400 rating, and someone else you know with a 400 rating decided to go into a loan application together? While your two scores together don’t necessarily add up to the same borrowing power as the person with a score of 800, it definitely helps your case. So, whereas one person in debt may not be able to secure a loan, two people willing to split a loan between them might be able to secure one by cosigning for one another.

Of course, this is a somewhat risky venture, and you will want to be sure that you absolutely trust the person involved before you do so. However, if you play your cards right, it can be an effective and compelling way to secure the funds you need to begin rebuilding your credit today.