Cosigner of your auto 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 ‘cosigner’. A cosigner can be anyone. It can be someone from your family or 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 owed under the agreement, if you 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 cosigner is employed by an organization, they will need to provide their pay stubs. If you are self-employed, the Income statement will be necessary. If you do not provide proof of a source of income, the lender may disapprove your loan application.
- Stability
Sometimes potential lenders can dig deep to verify the stability of your cosigner. They may want to check the cosigner’s reputation in the community along with their tenure on the job with the employer. They consider the cosigner 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 you, the co-signer risks lowering his or her 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 be completely dependent on the guarantor.
· A co-signer cannot evade his responsibility after signing the contract. Therefore, he/she is responsible for your auto 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 spending and will make monthly payments responsibly.
