If you need a co-signer, you are not alone. In 2018, about 90% of private student loan borrowers had a. No matter the reason and no matter how responsible you are, it can be awkward to ask someone if they are willing to put their own credit on the line for you.
Finally, your co-signer assumes legal responsibility for paying the debt if the borrower defaults or fails to make payments. A quick Google search for "co-signing a loan" brings up numerous results advising against ever co-signing for anyone.
But you can prove that you are responsible. And with the holidays upon us, it's a good time to talk about it face-to-face.
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How to Decide Who to Ask
First of all, you should find out what requirements the lenders you are considering have for a loan application. Some institutions will require that your co-signer be a U.S. citizen or permanent resident, so it's best to know just the basic requirements for an application before you have an awkward conversation. Lenders will also look for a cosigner's credit score and regular income, so this can narrow down your list based on what you know about your family and close friends.
Just because someone can co-sign for you doesn't mean you should ask. It should be someone you fully trust and expect to have a long, positive relationship with you while you repay the loan – not the person most likely to say yes.
Money can easily ruin relationships, so don't ask someone who might feel obligated to say yes but wouldn't be able to make the payments in a pinch. While you should never take out a loan you're not sure you can pay, life happens, and the last thing you want is to inadvertently saddle someone with a huge burden who can't afford it.
A financially responsible cosigner with excellent or good credit can help you get a lower interest rate on your loan amount.
Have someone ask you to co-sign for their private student loan? Check out our guide to co-signing private student loans.
How to show that you are a responsible borrower
Start by making your finances transparent. Get a copy of your full credit report and bring it with you, along with your last years tax returns and pay stubs to prove what you earn now. (You are entitled to one free report every 12 months from each of the three credit reporting agencies in the U.S.).)
While your potential cosigner will consider more than your credit report, it will show a complete picture of your credit history. This could include any missed monthly payments or bank accounts in arrears, but being open about past financial mistakes shows your commitment to transparency.
Ways to protect your co-signer and give them peace of mind
Know your loan's policies for co-signer release and missed payments
When choosing a lender, make a list of all the questions you have, then call them to get the answers if you can't find them online. What options do you have in case you have to lower your payments? If your lender offers a co-signer release? How quickly can you get a co-signer release that allows you to remove your co-signer's name from your loan, and what does it take to qualify? If you're able to show your cosigner that you don't need him for the full term of the loan, it can minimize his risk and probably make it easier for him to say yes.
Have a plan B
Of course, the plan is that you pay your monthly bills on time and in full. But suppose you lose your job, or your partner or spouse has to move for work, and it takes longer than expected to find a new job. It's important to think through the worst-case scenario before your potential co-signer asks you the "if" question.
Set up account warnings for your co-signer
Make it easy for your cosigner to keep up with the progress of your loan, when payments are due, when they are made and if they are missed. If your loan servicer offers automatic notifications for your account, sign up yourself and your co-signer. You could also set up an automatic forwarding for all emails from your loan broker to your cosigner's inbox. That way, if you have financial problems, your cosigner can turn to you long before the lender does, says Jacob Dayan, CEO of Community Tax, a Chicago accounting firm that often helps clients set themselves up well to secure cosigners.
"If you make sure there are no missed payments before you ask a potential co-signer, it shows a clear sign of responsibility and long-term sustainability," he says.
Define the responsibilities between you and your co-signer
Before you sign, have a detailed conversation about all the details of the loan and how you will pay for it, and then put it in writing for future reference. Your loan installments may not be due for a few more years. So if you put your expectations in writing, you avoid confusion when the first payment is due.
Explain what is expected of you as a borrower, z. B. Setting up automatic debiting from your checking account every month. What is expected of you if you once think you can not make a payment? What are the conditions for a co-signer release, and how will you work towards it? The more clearly you can express yourself, the more reassuring it can be.
How to start the conversation
Asking for help is perhaps the most difficult part of all this. But there are some ways you can make it an easier conversation to have.
If you plan to ask a family member you only see a few times a year, consider calling or texting them well before Thanksgiving dinner to ask if they are willing to talk about being your co-signer. Instead of asking, "Would you vouch for me??", you can say, "I'm thinking of refinancing my student loans to lower my bills and pay them off faster so I can start saving to buy a house. Would you be willing to talk to me about this when I meet you next week?"
If they are open to it, make a few notes on points you can address such as.B. Your track record of paying off your credit card bills, your current debt to income ratio, and any assets you have that you can fall back on in case of emergency. Explain at the beginning what you need the money for and answer any questions about your tax situation and your ability to repay the loan. Close by letting them know you don't need an answer right away (try to give them a few weeks to think it over, especially if they need to consult with their spouse), and that if they say no, you will respect their decision.