Cosigner of your car loan – Complete interpretation of the term to help you make an informed decision
Many times while looking at your car loan agreement you may come across the term ‘co-signer’. A co-signer can be anyone. It can be someone from your family or from your group of friends. Basically, a cosigner is someone who guarantees that if you can’t repay the loan, you’ll be legally responsible for paying the debt.
Key requirements:
There are some requirements that are essential if you plan to get a co-signer for your loan.
- mutual consent
The co-signer must be willing to sign the contract and promise to pay the amount due under the agreement, in the event that they are unable to make the payments. The guarantee is always taken in writing and the lender will not accept a verbal commitment.
- Proof of a source of income
At the time of signing the contract, sufficient income must be duly accredited. If your co-signer is employed by an organization, they will need to provide their pay stubs. If you are a self-employed worker, the Income Statement will be required. Failure to provide proof of a source of income may result in the lender disapproving your loan application.
- Stability
Sometimes potential lenders may go deeper to verify the stability of your cosigner. They may want to verify the cosigner’s reputation in the community along with their continued employment with the employer. They consider the guarantor as part of their “team” when approving the loan.
The risk factor
In addition to the requirements, you should consider the following risks before engaging a co-signer:
The biggest risk is the risk of financial setback for the co-signer. By agreeing to help, the co-signer risks lowering their own credit rating.
· The lender will sue the co-signer if he does not pay the loan. Therefore, it is advisable to pay the loan on your own and not completely depend on the guarantor.
· A co-signer cannot escape responsibility after signing the contract. Therefore, he/she is responsible for your car loan. It could lead to disagreements between you and the co-signer.
In the end, it is a personal decision to opt for a co-signer. The agreement between you and your co-signer should be clear from the start. It will ensure that there is no room for confusion in the future. Remember that a mature car buyer will not hold others responsible for their expenses and will make monthly payments responsibly.
