Negative impact on your Credit Rating

If the person you have cosigned with does not pay monthly installments on time, it will have a negative impact on your credit rating. Once your credit rating deteriorates, it is not easy to resurrect it. Improving credit score takes plenty of time and you need to be very disciplined in order to achieve it. Before cosigning a student loan, make sure that you check the financial condition of other cosigner first. There is no point cosigning a student loan if the monthly source of income of other cosigner is not up to the mark. To get a better feel of cosigner financial condition, check their bank account details.

According to recent study of Federal Trade Commission, of all the co-signed loans that enter into the category of default, as many as six out of eight co-signers are needed to repayment of loan. Remember, your family member has taken your assistance after facing rejection from the financial institution because of their bad credit rating. Financial institutions normally reject student loan applications when they believe that borrower is quite a risk for them. In this scenario, financial institutions are left with no other option than to ask for a co-signer.

What will happen if the other co-signer misses a payment?

In majority of US states, if the other co-signer misses a payment, financial institution will come directly to you rather than contacting the actual borrower. In some cases, you will also be required to pay late fees that are applicable to the actual borrower. If you have put anything in the form of collateral, financial institution is given a full freedom by the US law to recover their loan amount by selling your collateral. Do not put anything as collateral until and unless you are sure of the credibility of your family member or friend. Before co-signing, be clear in your mind whether you can afford the debt amount or not. If the answer is no, tell your relative clearly your financial condition is such that you cannot afford any additional burden.

As students you must be pretty much confused about the modalities of obtaining a Student Loan. It is but natural. It is also important to remember the fact that the consequences of choosing a bad loan deal is sure to follow, even if it is a first time event. Such consequences are long lasting in the sense your entire future is under risk of falling prey to heavy liabilities and cost.

Loan advice for first timers

• It is important that you know the market condition very well. More than 250,000 students will have their loan applications turned down by federal agencies; many parents are likely to have their PLUS Loan applications rejected if they have a foreclosure in the previous 5 years; a higher credit score is expected and hence not all can qualify for loan program.

• As you all know, apart from need based programs, everything else needs a credit a good credit score to qualify. As students you would hardly have a credit history or even if you have one it would be very thin. Hence, you can apply for a credit card along with your parent’s signature or apply for a loan co signed by your parents. Remember by co signing you better your chances of getting a Student Loan and also that the cosigner becomes equally responsible for the debt. Remember to choose somebody who has a credit score of 700 or more points.
• You should always remember to approach federal loan agency for financial support. You are eligible for $31,500 to $57,500 from Stafford Loan program. If your parents do not qualify for PLUS loans then your loan limit increases. These loans are comparatively cheaper and have flexible repayment schedules.
• It is important for you to perform enough research in the matter and compare deals. Beware of advertised rates, they are generally meant for students with very good credit score. Compare various deals and ensure your payment is in the expected way. The longer the term the lesser you pay per month and more interest is paid over the life time of the debt.

Which loans do not need a cosigner?

Loans such as Federal Stafford loans are not based on your credit history. Hence applying for these loans will not require a cosigner for sanctioning your loan.

What kinds of loans are available that will not require a co-signer for funding your education?

Applying for the following options you will end up getting a loan to fund your education without the need to have a cosigner.

• Perform research on Federal Student Loans. Loans such as Stafford and Perkins do not require credit check. Hence the need to have a cosigner for loan application does not arise.
• Make a Free Application for Federal Students Aid (FAFSA). This is an important channel through which government loans are granted to students. These loans are not granted based on the credit score of the individual. Further a FAFSA paves way to qualify for a scholarship grant.
• Applying for Subsidized Stafford Loan will be an ideal option, when you come from a low income category, no credit history and no cosigner to help. You are sure to get this loan. The loan amount though not fairly big enough to cover your educational expenses, it is surely a right start.
• Perkins Loan is specifically meant for those students to who are in a dire need for money to fund their education and who are left with no other option but for Government Funding. Perkins Federal Loans are granted at a interest rate as low as 5% and it also offers longer payback term for the convenience of students, keeping in mind their inability to repay the amount immediately.
• Non-traditional students have more than one option to explore and avail a loan without a credit check. Apart from qualifying for a Stafford and Perkins Loans, they become eligible for scholarships and grants to pursue their further studies. Respective colleges are a good source of information on such scholarships and grants.