If your credit score is not very high or you do not have a credit history, getting a co-signed loan is one of the best ways to start building your credit history and borrow the money you have you need. A co-signed loan opens several doors that would have been closed and allows you to obtain types of loans that would not otherwise be available. With a co-signed loan, you will no longer have an obstacle to buying the car you are looking for, the house you have always dreamed of, or a personal loan that will help you with your daily financial needs.
Getting approved for your first loan is an important step, so it’s of utmost importance that you choose your co-signer wisely. A co-signed loan could be exactly what you need to build your credit and show prospective lenders that you are financially responsible. But beware, a co-signer struggling with his own financial difficulties could ruin your own finances.
Yes, most banks and private lenders only approve co-signers with good financial records, but in reality it is difficult to predict the future based on just a few numbers. The financial situation of your co-signer might seem stable and healthy, but they could lose their job, get sick or have any financial emergency in the future. That is why it is extremely important that you choose your co-signer carefully, but that you are also able to take responsibility for your loan and complete all payments on time.
The goal of the co-signer is to reduce the risk of borrowing for the lender and allow you to borrow the amount of money you need. A co-signer is not there to help you out when you’ve spent all your paycheck on unnecessary things. If you chose to co-sign for the right reasons at the outset, you should be able to make all your payments without any difficulties, even if the bankruptcy is declared.
If you think of co-signing loans so that you can borrow money at their expense, change course. This is not the purpose of the co-signing loan. Because if your current co-signer declares bankruptcy and you count on them to make half the payments, then you will have to go and get a new co-signer or contact your lender to find a way to take responsibility and the full risk of the loan.
You will have to fend for yourself
When a cosigner declares bankruptcy, they are no longer obliged to help you with the payments if you are not able to do them yourself. Although this could be a problem for you, it depends entirely on your own financial situation. Your lender may become concerned that you will not be able to make payments on your own because you no longer have a “safety net”. The most important thing you can do is continue to make your payments on time and in full. This way your lender will see that they can trust you, and your credit rating will not suffer from missed payments.
Your credit report
What can happen is that the loan will appear on your credit report as part of a bankruptcy since your co-signer has declared bankruptcy. But the good news is that it will have no effect on your credit rating. Be sure to check your credit report in case it is not in good order. Keep in mind that it is your co-signer who has declared bankruptcy, so do not panic.
What will happen if you can not make the payments?
Unfortunately, in the event that you are unable to make the payments, your credit rating will suffer. If you used the loan to pay for your car, it could be seized or your creditor could sue you for you to repay the entire loan. The reason is that your co-signer has been exonerated from the responsibility of the amount to be reimbursed and you have become the only person responsible.
If you are thinking of getting a co-signer to help you get a loan to build your credit history or buy something it is important that you choose a good co-signer. As we discussed above a co-signer is intended to reduce the risk of the loan to the creditor and is not there to actually make your payments. A loan is a serious commitment; it is important that you are in a stable financial situation, and your co-signer too. Take your time, do your research and you should have no trouble using a loan to improve your financial health, even if your co-signer goes bankrupt