Sometimes, people who need to go to college don’t have the best credit. They need cosigners to help them get the loans they need in that case. Here is some information on student loan cosigners and how to protect them when they assist other people:
What Exactly Is a Cosigner?
A cosigner is a person who helps someone to get a loan when he or she is otherwise ineligible for such a loan because of a poor credit score. Private student loans with cosigner are one example of the types of loans that may have cosigners involved. The cosigner signs to take responsibility for the loan if the borrower defaults. This allows the individual to get the funds they need while also giving them an opportunity to grow their credit score. If the arrangement goes properly, both individuals can benefit from it greatly.
How Is a Student Loan Cosigner at Risk?
Cosigners take huge risks when they agree to take responsibility for someone else’s loan account. The cosigner risks having his or her credit score plummet if the other individual does not make payments.
Three Ways to Reduce Liability if You’re a Cosigner
As a cosigner, you can reduce liability in a number of ways, such as:
Keeping in Touch With the Borrower
One way to protect yourself as a cosigner is to stay in touch with the borrower. You need to know what’s going on with the account from the borrower’s perspective so that you can protect yourself. Ask the borrower if he or she is alright financially so that you’ll know if a problem arises. Don’t let too much time pass where you fail to communicate with the other party.
How to Protect Your Cosigners
Staying Prepared to Make Payments
You will hope that you never have to get into a situation where you have to pick up the slack for the borrower. However, it’s possible that it could happen. It would be wise to keep some money set aside just in case the borrower does not fulfill his or her obligation. It’s a means to protect yourself from credit damage.
Keeping Tabs on the Account
Also, you should ensure that you have access to the online account so that you can monitor what’s going on each month. That way, you can catch a missed payment either before or after it happens and take steps to rectify it before it affects your credit. Knowledge is always power, and so you need to fill yourself with plenty of it.
According to Ascent, lenders can help protect cosigners by educating them about the risks involved in the consigning process. That’s not to deter them from consigning, but to make them aware of the risks so that they will know whether to take them for the person involved. Lenders can also keep cosigners abreast of everything going on with the account.
Those are some of the ways that lenders and students can protect student loan cosigners. Take some of those steps to ensure that every good-natured cosigner stays safe at all times.