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Can I Get A Cosigner To Help Qualify For Loan Refinance?

by Refi.me Staff on February 17 2021

For many college students or recent graduates, cosigners are one of the only ways they can qualify for loans or loan refinance. Students and graduates haven’t had as much time to build good credit yet.

While you can certainly get a cosigner to help qualify for student loan refinance, it deserves a more detailed answer than a simple yes or no. Here’s why you may need a cosigner, how it helps, and the consequences of refinancing with a cosigner.

Mandatory Requirements for Refinancing Student Loans

Lenders assess a variety of factors to determine whether or not to approve your loan refinance application. They want to make sure you’re a responsible borrower before they lend you any money. One way to do this is by reviewing your financial history. Before approving your application, they will look into your credit history, monthly income and existing debt.

Almost all lenders require borrowers to have good credit, a steady income and a low debt-to-income ratio. A high credit score coupled with a low debt-to-income ratio increases your chances of getting approved. It also increases your chances of scoring a lower rate of interest.

A low credit score and a lot of existing debt can lower your odds of getting approved. Those who do accept will almost certainly charge you a higher rate of interest. This defeats the purpose of refinancing.

How a Cosigner Can Help

If you can’t meet the lender’s requirements because of unsatisfactory credit, applying with a cosigner could improve your prospects. This is provided that the cosigner has a strong credit history.

When you apply with a cosigner, the lender reviews the cosigner’s financial history and credit score. They will approve your application if your cosigner’s financial credentials meet their minimum requirements.

What is a Cosigner?

A cosigner is someone who agrees to share responsibility of the loan with you. This could be a parent, sibling, relative, or friend. The person cosigning your loan accepts full responsibility for your loan, including making payments if you can’t afford to. If you default on your payments, the lender will hold your cosigner responsible for paying off your debt.

When Is a Cosigner Needed?

Not everyone needs a cosigner for refinancing student loans. If you meet the lender’s requirements you don’t need a cosigner. You can get approved and also score a low interest rate based on your own credentials.

You only need a cosigner if your income and credit score don’t meet the creditor’s eligibility criteria. In this case, getting a cosigner can strengthen your application and boost your chances of getting approved. It can also help you get a lower rate of interest on the refinanced loan.

What Does A Cosigner Need To Qualify?

Lenders have their set of requirements that they expect all borrowers to meet. When you apply for refinancing by yourself, you will have to meet the lender’s minimum requirements. When you apply with a cosigner, the cosigner will have to meet those minimum requirements to be eligible.

The exact eligibility criteria differs slightly from one lender to another. In general, cosigners will be required to meet these conditions:

  • Have good credit
  • Earn a steady income
  • Have a low debt-to-income ratio

These are three of the primary factors that go into assessing cosigner’s financial credentials. These factors also play a key role in determining interest rates on loans. You have a higher chance of getting approved with a low interest rate if you apply with a cosigner who meets all three requirements. .

How to Refinance Student Loans with a Cosigner

Whether you’re refinancing with or without a cosigner, you must take do your homework before submitting your loan application. These are the 7 steps to refinancing student loans with cosigner.

#1 – Shortlist Lenders

Pick a list of lenders that will allow you to refinance student loans with a cosigner. Not all lenders allow this. If you can only qualify for refinancing with a cosigner, the first thing to do is to look for lenders that allow cosigners. Strike out all lenders that don’t.

#2 – Compare student loan refinancing rates and terms.

Every lender sets their own published refinancing rate. They also have their own formula for calculating personalized rates based on credit score. Comparing rates and terms is the key to discovering a lender offering the best rates for you.

#3 – Gather documents.

Once you’ve selected your lender it’s time to gather together the necessary documentation they’ve asked for. Lenders typically ask for your personal and financial information as well as your cosigner’s personal and financial information.

#4 – Read the loan agreement.

After the lender has scrutinized all your documentation, they will put together a loan agreement, which you will have to sign. Both you and the cosigner will need to agree to the terms and sign the refinancing agreement.

#5 – Sign up for auto-pay

The loan starts accruing interest from the day the money is disbursed. The amount and due date for the first monthly payment will be stated in the loan agreement. Make a note of it set a reminder so you don’t miss any payments. Better still, set up auto-pay. This authorizes the bank to transfer the payments to the lender every month on a set date. There are two benefits to setting up auto-pay. It minimizes the risk of delayed payments. You could also get a rate discount from the lender.

Are There Cosigner Releases?

Acting as a cosigner has its own risks. If you renege on your payments, your cosigner will be held responsible for making good on the outstanding payments. Delayed payments will also hurt their credit score. Considering the risks that a cosigner takes on, many lenders have a cosigner release option. Once your finances have improved and you’re eligible for refinancing on your own, you can apply for cosigner release. This frees your cosigner from any responsibility related to your loan. Different lenders have different requirements you will need to meet before they agree to release a cosigner. Check with your lender to know more.

 

We hoped you enjoyed this article! Remember, you can compare your personalized rates with our lending partners and potentially lower your monthly student loan payments and save money.

The Refi.me team is always here to help you