- 1 What Happens to My Car If My Cosigner Files for Bankruptcy?
- 2 Do I Need a Cosigner to Apply for Home Equity?
- 3 Do I Need A Cosigner For My Credit Card If I’m Under 21?
- 4 why do i need a cosigner for a car
What Happens to My Car If My Cosigner Files for Bankruptcy?
In theory, individuals who cosign vehicle loans should have solid credit. After all, most lenders conduct thorough background checks and adhere to stringent credit-score guidelines before agreeing to lend large amounts of money.
Banks may mitigate their risk by refusing to accept cosigners with questionable credit. Unfortunately, they have few defenses against problems that they can't see coming. If your vehicle-loan cosigner's financial situation deteriorates rapidly after they agree to back the loan, you may find yourself in a tight spot.
Remember that you can prevent this situation by refraining from using a cosigner to obtain an expensive loan in the first place. Before agreeing to take on a new credit facility, make sure that your current income is sufficient to cover its monthly payments. You should opt for a cosigner only if a shaky credit score renders you unable to secure a car loan through a traditional lender.
You can take additional steps to protect yourself from a wayward cosigner. Disregard social convention and ask them penetrating questions about their financial situation. If your cosigner is hiding significant amounts of debt or is worried about an impending round of layoffs, politely decline their offer of help and seek out a more financially-secure partner.
Once you've taken out your loan, do everything in your power to make timely payments on it. You shouldn't need to rely on your cosigner for financial support. In fact, habitual reliance on a third party to cover the costs of your loan is a clear indicator that you can't afford your vehicle.
Assuming that you're able to cover the full cost of your loan on a month-to-month basis, you won't be directly affected by your cosigner's bankruptcy filing. After all, your cosigner's job is simply to provide your bank with peace of mind and serve as a backstop in the event that you become unable to make your loan payments.
However, if your cosigner has been covering all or part of your loan's cost and can no longer afford to do so after filing for bankruptcy, your loan will fall into arrears. If you can't come up with the money to cover the mounting debts associated with it, your lender will eventually repossess your vehicle.
You may also lose your vehicle if you were already behind on your loan payments at the time of your cosigner's bankruptcy filing. With neither you nor your cosigner able to make timely payments on your loan, your cosigner's court-appointed bankruptcy trustee may seize your car and use it to cover their outstanding debts.
Do I Need a Cosigner to Apply for Home Equity?
It's not the value of the house but the equity that limits your loan.
A home equity loan -- also known as a second mortgage -- usually offers you a lower interest rate than a bank loan or credit card purchase. There's a limit to how much you can borrow, typically 80 percent of your equity, which is the value of your home above the mortgage. If your credit score isn't stellar, a cosigner can help you secure the loan.
A second mortgage uses your house as collateral, which is why it features a lower interest rate than a conventional loan. Collateral may not be enough to obtain the loan if your credit is poor, though. If you have average credit, you might qualify for a loan but not one with a low interest rate. Depending on the current market, the difference between excellent and average credit could be the difference between a 4.75 percent interest rate and a 7.5 percent rate, according to an April 2013 Los Angeles Times report.
A cosigner is someone willing to put his credit on the line with yours. A good cosigner is someone with excellent credit, usually a close friend or family member. By cosigning the loan, he can substitute his credit for yours. That makes him equally responsible for paying off the debt, even though he's not a co-owner of the house. If you miss a payment, the bank can sue him for the money instead of you.
Before you ask your mother or your frat brother to cosign for you, talk to the bank. It may be that credit isn't the only issue. Some banks turn borrowers down because of the location of the property -- for instance, it's a neighborhood with big swings in property values where home can easily sink in value. If your income isn't enough to make monthly payments on the home equity loan, a cosigner probably won't help either.
If you need a cosigner, that's a sign the bank doesn't think you can pay the money back. Before begging your parents to cosign, consider whether the bank has a point. If you default, your cosigner has to pay and her credit score takes a huge hit. If it's someone close to you, ask yourself -- and maybe her, too -- if your relationship can survive something like that. It may be you're better off not borrowing.
Do I Need A Cosigner For My Credit Card If I’m Under 21?
Most of us know that it’s important to start building a positive credit history as soon as possible. After all, having good credit is essential to so many aspects of our financial lives – everything from renting an apartment to buying a car depends on it.
In the past, young adults could get started with their own credit cards as soon as they got to college. But with the CARD Act of 2009, this rite of passage has been largely halted. Now it’s much more difficult to get a credit card if you’re under 21, and some college students are so confused by the question of whether or not they need a co-signer that they’ve given up on the idea of credit cards altogether.
If you’re under 21 and looking to get a credit card, take a look at the information below to fully understand the co-signer requirement.
CARD Act makes it tougher for college kids to get plastic
Back in the bad old days, credit card issuers used to set up stands at colleges and universities on move-in day and offer students free T-shirts and food for signing up for a card. This, unfortunately, is how many people were introduced to credit. Students would run up debts based on their parents’ income, even though the parents weren’t on the hook for the debt. They’d start their financial lives deep in debt and struggle to get back on track.
Luckily, the CARD Act banned this practice, and the marketing of credit cards to college students has been significantly reined in. However, the same legislation also made it much tougher for people under 21 to get a card at all.
According to the law, you must have a co-signer to obtain a card if you’re under 21, unless you’re able to document that you have the income to repay the debt. Since most college students aren’t able to work enough hours to meet this requirement, a co-signer is almost always required.
This can be a serious roadblock to young people interested in getting a credit card; co-signing is a big responsibility that a lot of people don’t want to take on. Remember, co-signing a card means that you’re responsible for making payments if the primary cardholder doesn’t. Many parents of young adults (the most likely candidate to co-sign a card) simply don’t want to take the risk of their child overspending or failing to make payments.
You may need a co-signer no matter how old you are
While it’s true that the CARD Act’s requirement that people under 21 obtain a co-signer unless they’re able to document a substantial income was meant to keep young people from abusing credit, most people don’t realize that the law tightened up lending standards for everyone seeking a credit card.
This is because in order to qualify for a card, you must be able to prove that your independent income is substantial enough to make the card’s payments, no matter what your age is. Of course, this is do-able for most people working full time. But if you’re over 21 and can’t meet the income requirement, you’ll have to find a co-signer.
While the CARD Act has been successful in reducing fees and interest rates paid by consumers, one major flaw came to the attention of lawmakers in 2012: the part of the act that requires borrowers to have an independent income that’s high enough to support making payments on the card was shutting stay-at-home parents out of getting credit in their own names.
Due to public outcry, the Consumer Financial Protection Bureau (CFPB) added a new rule to the law that allows people with “reasonable access” to income to qualify for their own credit cards. This has allows stay-at-home parents to dodge the independent income requirement. However, anyone who doesn’t fall into this category must prove that they make enough money to pay for the charges on their cards, regardless of age.
The bottom line : although it’s true that most people under 21 now need a co-signer to get a credit card, this isn’t the whole story. Those under 21 with a substantial income don’t need a co-signer, and those over 21 without a monthly cash flow will. Be sure you fully understand whether of not you’ll need to find a co-signer before applying for your first card!
why do i need a cosigner for a car
First of all, as cosigner you have the responsibility of debt. However you do not have title or ownership of the vehicle.
As cosigners, both parties are equally liable for the satisfactory completion of the terms of the contract. That means timely payments. This has probably already affected Attrayant's credit report.
Good start. (and good luck!)
If indeed both parties are responsible for payments, then when a payment is missed or late the bank should have the responsibility of notifying both the loan holder and the cosigner. However I have a feeling that this is not standard practice, and the bank just notifies the signer.