There is a long history in credit of using a strong Co-signer to strengthen an application. However, can they make up for a bad credit primary applicant?
What is a Co-Signer?
It is anyone 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 a lot of derogatory information, a strong co-applicant often can’t help turn a decline into an approval. Great credit does help in situations when the primary applicant is not strong enough, has limited credit or minor negatives on their bureau.
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 only to help the primary applicant get the loan. They really don’t want to pay past due or default payments.
Examples are parents that sign for their children to help them get a car loan. However, there are many other examples. Sometimes another relative or friend may help them get the loan. In these cases, the secondary signer does not get the proceeds or asset being applied for.
Due to this, if the primary applicant runs into difficulty and cannot repay, the guarantor usually does not want to pay because they received no benefit from it. In the past, guarantors have told lenders that they just signed the paperwork to help the other person get the loan.
In some cases, the C0-signer really believes they will not be held responsible. They believe their responsibility stopped after they signed the paperwork.
Lenders know primary applicants with bad credit will go past due often. As a result, the excellent credit guarantor will be asked to make good on the debt.
Strong Co-signers cannot always help a derogatory credit primary applicant get approved for a loan.