Cosigning a Personal Loan: What You Need to Know?

With prices for all kinds of commodities and daily essentials hitting the roof, it’s little wonder that most Malaysians today struggle to manage their finances effectively. In such a situation, a personal loan can be a powerful tool that you can use to manage all your financial obligations. From covering emergency medical costs to consolidating existing debt, there could be a number of credible reasons why you would want to borrow money from a bank. This is where having a good credit score really matters. Besides making you eligible for any kind of financing, it also justifies a low interest rate if you earn adequately. It’s a known fact that loan officers actively seek out those who are financially responsible. But, a solid credit score can also mean that you’re the cynosure of interest among friends and family alike. If you’re wondering why this is the case, then you may be alien to the concept of cosigning. What is Cosigning? A relatively common practice in the world of lending money, cosigning for a loan means that you’re wilfully agreeing to settle a borrower’s debt if he or she defaults on the loan payments. In short, cosigning is an opportunity for you to help another person get financial assistance as it greatly improves the odds of the loan application getting approved. The Good and the Bad of Cosigning a Personal Loan Application To be a cosigner for a personal loan, you need to have a good credit score and a lengthy credit history. Despite the immense value that this provision brings to the world of loans, cosigning comes with its own advantages and disadvantages. Here’s a list of pros and cons of cosigning a personal loan: Provides timely financial assistance The financial aspects of planning a wedding, studying further, or even moving homes can be stressful, especially when you’re low on cash. For those who aren’t eligible for a personal loan because of poor credit, cosigning can be a welcome opportunity. In such cases, a cosigner can make all the difference between your loan application getting approved or rejected. Helps you obtai First-time credit To build credit, you should’ve obtained credit previously. For those who’ve never borrowed money and have no credit history whatsoever, a cosigner can help you get your first loan so you’re on your way to building your own credit score and history. Ruins your credit Unless the person you’re cosigning for is obtaining credit for the first time, it’s always risky to be a cosigner. This is because the person requesting a cosign has previous history of defaulting on payments. As you’re equally liable for the cosigned loan, any missed payments can equate to your credit score getting ruined too. You’re liable for the entire loan term Cosigning isn’t just something that you do during loan approval. You’re just as liable as the borrower for the debt being settled over the decided tenure. So, once you cosign for a loan, there’s no way for you to get away from it. Truth is that you can’t gain personally when it comes to cosigning a personal loan. Cosigning only makes sense if your reasons to do it far outweigh the financial risks involved. Ultimately, the decision to be a cosigner or not rests with you alone as it’s your credit history that’s on the line.