Private Student Loans Blog

The Dos And Don’ts Of A Co-Signer

You hear such a lot about private student loans and those who avail of these that you fail to see those who are behind the scene. Not everyone can be eligible for these loans because they are approved based on a person’s credit score. If the credit report is not appropriate, the private student loans are rejected or offered at very high interest rates, which would not be suitable. The solution here would be to get a co-signer to act as a guarantor for you. This simple step would change your position vis-à-vis the financial institution since the co-signer would reduce the perceived risk considerably.

What happens if you are asked to act as the co-signer for private student loans?

If you have a good credit report and a close relationship with the person who is asking you to co-sign, by all means do it. However, before you say yes to your friend or relative’s request consider the following points:

1. It is very important to note that the mode of repayment of the private student loans adopted by the borrower would impact your credit standing. If he or she defaults, you would be stuck with a poor credit report for a long time, until you get to repair it by good financial behavior. Is the credit worth it?

2. Never become a co-signer for private student loans for a girlfriend or boyfriend. If you are married - yes; otherwise this could be a huge risk. If your relationship sours, it would be very likely you would be left holding the baby.

3. Pay close attention to the documentation when the private student loans are applied for and disbursed. Obtain a copy of every paper where your signature is put and familiarize yourself with what is written therein. Common sense sys that you should not sign anything unless you read it carefully; however, often one tends to sign on such papers in pure faith. In this case, go through every line written on the papers later on so you would be prepared for any possible eventuality.

4. Get it in writing – when you sign as a co-signer, get your friend or relative to put in writing how much they would pay, by what date and for how long so the loan would be liquidated. This private student loans could become your liability if the person decided to declare at some point of time as a gift from you.

5. Be prepared – many things can happen, when it comes to private student loans and usually do. A wise person would always have a standby plan of action that can be put in action immediately when something goes wrong. In this scenario, you should be able to enforce payment, or pay the dues yourself, lest your credit score suffer.