There is a long history in credit of using a strong Co-signer to strengthen an application. However, can a strong Co-signer make up for a bad credit primary applicant?
What is a Co-Signer?
A Co-signer is someone that signs with you on a loan request. It is normally done when someone with stronger and better credit than you offers to sign to help you secure financing. A co-signer is jointly liable for what they are signing for.
In general, a strong Co-signer does not make up for a bad credit primary applicant. If the primary applicant has significant derogatory information, especially significant recent derogatory information, a strong Co-signer will in most cases not be able to help turn a decline into an approval. A strong Co-signer does have a positive effect on an application is situations when the primary applicant is not strong enough, or has limited or weak credit, or has minor derogatory credit.
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There are several reasons why a strong Co-signer is often not helpful when the primary signer has significant derogatory credit. Lenders know that in most cases, Co-signers sign solely to help the primary applicant get the loan. A Co-signer normally does not intend to take a benefit by Co-signing. Examples are parents that Co-sign for their children to help them get a car loan. However, there are many other examples. Sometimes another relative may Co-sign, or a friend may Co-sign just to help the primary person get the loan. In such instances the secondary signer does not want the proceeds or asset that is being applied for. Due to this, if the primary applicant runs into difficulty and cannot repay, the Co-signer often be very unhappy about the prospect of paying the loan because they received no benefit from it. In the past, lenders have heard Co-signers outright tell them that they just signed the papework to help the primary person get the loan. In some cases, the C0-signer really believes that they really will not be responsible and that the limit of their role is that the just signed the paperwork and there was nothing more to it that that.
Another main reason that lenders do not want to make loans to bad credit primary signers even with a strong Co-signer is that if the primary has a lot of recent derogatory credit, the lenders know that statistically, there is a much higher chance that the primary applicant will go into arrears and past due compared to primary applicants with limited derogatory credit and a high credit score. Since the percentage of borrowers that go past due is higher, lenders know that they will end up going to the Co-signers asking for recourse in a higher percentage of instances than with stronger credit primary signers.
There are some loan products which are exceptions to this, but in most cases for the reasons stated above, a strong Co-signer will not help a derogatory credit primary applicant get approved for a loan that they otherwise would have been declined for.