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Cosigner vs Guarantor on loan Application

Cosigner vs Guarantor on loan Application

You’re responsible with your money and have decent credit. Lets understand the risks and Liability involved in Co-signing and Being an Guarantor on a loan application.

Cosign is to sign together with a borrower to help them get approved for a loan or to get better terms on a loan. If the primary borrower cannot pay back the loan the cosigner will be liable for the debt. Cosigner also own the asset with other borrower for eg. a car cosigner is also the registered owner .

 A guarantor is someone who backs up someone taking out a loan and agrees to take over the payments in case the borrower defaults on the loan payments. A guarantor does not own the asset for eg. car loan guarantor is not registered owner of vehicle.

Questions to Ask Before Agreeing to Become a Guarantor

If the borrower is unable or unwilling to fulfill their obligations and promise to repay the loan. Given the potential risk, it is important for anyone who is considering becoming a guarantor/cosigner to ask a number of questions first, including the following:

  • Do you trust the borrower to always make their payments on time?
  • Why does the borrower need a guarantor?
  • Can you afford to cover any missed payments?
  • Can you afford to cover the entire cost of the loan?
  • Can you trust the borrower to pay back the loan on time?
  • Are you worried that being a guarantor for a friend or family member might ruin your relationship?
  • Will being a guarantor affect your ability to secure your own loan in the future?
  • Will you have to put up your own assets as security?
  • What is the loan amount that you will be guaranteeing?
  • Can you take yourself off the contract at some point in the future?

7 Saved
Deepak· Nov 18, 17:28
Why one need guarantor if there is insurance is in place?
Prachit· Nov 18, 17:52
Let's get it straight in a simpler language. Insurance is for accidental damage and repairs, or theft. Or a kind of incident which is not under your control, maybe a fire or a natural disaster. But insurance is not a bank which gives you money when you are broke. It is not one of the parent that when you don't have money, you just call your parents and borrow some money from them to pay some of your loan installments. In contrast, consigner and guarantors are actually your parents. The day you go broke, they will have to pay for you. They are like partners in crime. When you have a credit score lower than average or a standard bar, you will require one of them. Because the money lender has already assumed that you are not a smooth payer. So they need a security in the form of an another person (richer than you, atleast in having a credit score) so they can pay if you can't. This is the simplest and dumbest language I can speak in. Hope you have got it. 👍
Gurmeet · Nov 18, 19:35
lender may seeks more security in form of cosigner or guarantor if borrowers don't qualify for loan.
Deepak· Nov 18, 18:32
Thanks for answering, that mean without guarantor one can’t get loan, what if borrower has good credit score or no guarantor
Sandeep· Nov 18, 19:06
It depends with the lender. Some lender don’t consider new credit no matter how good is your score. Generally you get a car loan with new credit.
Gurmeet · Nov 18, 19:39
If borrowers has good credit score ,credit history and stable job earning, getting loan is not an issue
1 Like