If you are a student facing the situation of getting a student loan, you are not alone. The process itself is fairly easy and the benefits, of course, are the ability to have the money needed to pay for college and get a degree. One of the most common questions asked when this situation arises is that of a cosigner. Is it needed? What does it do? Are there any added benefits and will my cosigner be affected by doing this? The short answer to all these questions is a resounding yes.
Private student loans are issued based on your credit and that of a cosigner. The better the credit score, the lower the interest rate. Typically, students just graduating from high school don’t really have an established credit record, making it almost impossible for them to get a loan by themselves and if they do, it generally is at a very high interest rate. This is where a cosigner comes in handy.
Having a cosigner with a decent credit score will get you the best interest rate possible. This is a huge bonus because the difference between a 5% and 10% interest rate is huge in the long run and can save you thousands of dollars over the lifetime of the loan. Also, having a cosigner will allow you to apply for premium student loans and increase your chances of being approved.
It seems like a no-brainer to use a cosigner on a private student loan. The real question is how does cosigning for a loan affect the cosigner? One must know that cosigning for a loan means the cosigner is guaranteeing to repay the loan should the borrower fail to make the required payments. This means that the loan will almost always appear in the cosigner’s credit history and could affect their chances to get another loan from the bank. At the very least, the cosigner might have to pay a slightly higher interest rate because the lenders view the credit history and see cosigning a student loan as a liability against this person. However, if the loan is paid off as agreed, then both credit histories will benefit (the student’s much more than the cosigner).
One of the best candidates to cosign is a student’s parent since they will usually help out with college costs and will probably be the easiest to get to cosign. This is a huge responsibility for them and it is important for the student to pay all of their bills on time so the cosigner won’t have credit issues in the future. If this is done properly it can be a win-win situation for both parties, and if not, both credit histories could be potentially harmed for years to come.
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