Most of us will go into some form of debt during our lives.
More often than not, it ends up taking a pretty considerable toll on us emotionally and financially. Although to a certain extent, we can certainly argue that debt is a necessary part of modern life, there are ways that we can change our own borrowing habits to decrease the strain on the individual.
One of the options is to go for a loan that has a co-signer or guarantor apply with you. Now, that is not the only reason to get one, but it is one potential option. Really, there is a lot to cover on this topic, so do not worry even if you are not familiar with it just yet. By the time we are done here, you will have a much better understanding of what to expect.
So, make sure to stick around if you would like to learn more about what a guarantor or a co-signer is, and how the loans that involve them operate! Although they might seem complicated on the surface, once you delve into them a bit deeper, it is much simpler than you might expect.
A Quick Overview: Co-Signers
First, let us examine what a co-signer or guarantor is in the first place. After all, it is rather difficult to consider whether or not this type of loan is risky or not without understanding what they are. You can get a basic explanation or a refresher on this page: https://www.proquest.com/openview/4a7935308c5fe447f72694e2f8d421cf/1?pq-origsite=gscholar&cbl=33486.
To put it simply, a co-signer/guarantor is someone who applies alongside the initial borrower for a credit agreement. They can be applied to all sorts of loans, from credit cards to student loans and even auto ones or mortgages. The goal is to help increase the overall approval odds for the borrower.
How it Works and Why it Matters
So – now that you have got a basic definition of a guarantor, you may be wondering why it is so important anyway. Is it something that happens all the time, or is it just a thing for student loans? After all, that is the context that we usually hear about them in.
The thing is, they are really not limited to only that type of credit agreement. In fact, you can make almost any sort of one have a guarantor. However, do not forget that most of the time they are only offered when an initial application is rejected.
Otherwise, it is a process that you will have to specifically look for or ask for from your lender. Although it is not that much of a hassle to do so, it is at least worth bearing in mind. You can even look up “co-signer loans” online if it is something that you are seriously interested in applying for.
In terms of why they matter, though, it is for a few reasons. One we mentioned above, but the other has only been alluded to thus far. Put simply, a guarantor is important for many borrowers who have poor credit scores. In those circumstances, they can have someone else “guarantee” that they will be able to pay the loan back to put lenders more at ease.
A lot of studies have been done on this topic, including this one, if you’d like to get a few more details on how it works. Really, though, the goal is to improve a borrower’s chances of being approved for a loan that they need.
Who Can Be a Co-Signer?
The next question that we should tackle is who exactly can be a co-signer or guarantor. Technically speaking, anyone can. However, there are specific folks who are better suited to it than others.
This does make one wonder who they should be asking to be their guarantor, of course. Some of the obvious answers are those who are close to you. That could be a family member, relative, or other loved one in your life. Why is that the answer, though?
Largely, it is because of the fact that a guarantor is going to be someone that you will need to talk to in case you are not able to make your repayments in a timely manner. After all, they need to be made aware of that sort of thing because they would also be impacted by the fact that the payments would be late.
Therefore, they should ideally be someone that you are comfortable talking to about finances. Additionally, though, they should have a credit score that is higher than your own. In the best circumstances, they will have one that is significantly higher than yours, so that they can give you the best chance of being approved for the loan that you are after.
How Risky are they, then?
With all of this being said, it is about time that we took a look into how risky they are. We often hear that an lån med kausjonisti or loan with a guarantor is highly risky, but this is not always the case in practice. Rather, the risk is sort of dependent on how badly late repayments or defaulting would impact both of the people signed onto the credit agreement.
So, really, that is how we can determine how much risk that we are taking on. Admittedly, the co-signer or guarantor is probably the one taking on a higher degree of risk because their credit history is better, and it could potentially take a big hit if the credit agreement is not fulfilled. So, that is another thing that you will probably want to bear in mind when you are asking someone to be your guarantor.
Are Loans Worth it?
To conclude our analysis here today, we can look at loans, in general, to figure out whether or not they are worth it. As we mentioned earlier, it is pretty much inevitable that we have some form of debt throughout our lives. However, reducing it can be critically important to achieving financial stability.
Those monthly repayments can really start to add up, so it is hard to say that every single time you need money it would be worth taking out a loan. However, for true emergencies or for planned projects that would end up “paying off” in the long run, they are generally a positive thing.
As long as we are careful about how much debt we are taking on, it is likely going to be okay. That is really the sticking point, though – be careful about how many loans you are taking out. Once you reach “critical mass” so to speak, that’s when financial ruin could end up being around the corner.
Naturally, that is perhaps a bit hyperbolic, but considering the number of people who are in crippling levels of debt both in Norway and across the world, it is worth warning about. In that sense, having a guarantor on your loan also gives you an even bigger sense of personal responsibility in terms of making sure that those payments are made.
In some ways, which is another reason that we can say that these loans are worth it. Keep that in mind if you have not decided for certain whether or not you want to go for one. Because of the fluctuating nature of loans and finances in general, it is only natural to be a bit hesitant sometimes.
Again, though, so long as you are not going over your budget in terms of the monthly bills that you will end up having, there are a few reasons not to go for a loan if you want one. They are popular for a reason and can be really helpful to help us to afford things that are perhaps just a bit out of reach.
If it is within your means, then go for it! Ask a co-signer as soon as you can if that is an option that you are seriously considering. That way, you can work together to formulate an action plan as far as paying the loan back and keeping up with those bills goes – both of you will probably want to be involved, after all.
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