Many a times while you are looking at your car loan contract, you may come across the term ‘cosigner’. A cosigner can be anyone. He/she can be someone from your family or your group of friends. Basically, a cosigner is someone who guarantees that if you cannot pay back the loan, they will be legally responsible to pay back the debt.
There are a few requirements which are essential if you plan to get a cosigner for your loan.
- Mutual Consent
The cosigner must be willing to sign the contract and pledge that he/she will pay the due amount as per the agreement, in case you are not able to make the payments. The guarantee is always taken in writing and the lender will not accept a verbal commitment.
- Proof of an Income Source
At the time of signing the contract, proper evidence of sufficient income must be provided. If your cosigner is employed with an organization, he/she will have to provide his pay-stubs. If he/she is self- employed, income tax return slips will become necessary. In case of failing to provide the proof of an income source, the lender may disapprove your loan application.
Sometimes, potential lenders may dig deep to cross check your cosigner’s stability. They might want to check the cosigner’s reputation in the community along with his/her work tenure with the employer. They consider the cosigner as a part of your ‘team’ while approving the loan.
The Risk Factor
Apart from the requirements, you must consider the following risks before involving a cosigner:
· The major risk is the risk of financial setback to the cosigner. By agreeing to lend you a helping hand, the cosigner risks lowering his/her own credit score.
· The lender will sue the cosigner if he/she fails to repay the loan. So, it is advisable to pay off the loan on your own and not depend entirely on the cosigner.
· A cosigner cannot shy away from his/her responsibility after signing the contract. Hence, he/she is liable for your auto loan. It might lead to disagreements between you and the cosigner.
In the end, it is a personal decision to opt for a cosigner. The agreement between you and your cosigner must be clear from the beginning. It will ensure that there is no scope for confusion in the future. Remember a mature car buyer will not make others liable for his/her expenses and make monthly payments responsibly.