Why Lender May Deny Cosigner Release
What is Cosigner Release?
Cosigner Release allows the cosigner to be removed from the loan after a set number of on-time payments and other requirements have been met. Cosigning is common with student loans especially in the case of private student loans. No lender will like to grant loan to somebody with no proof of sufficient income. Having sufficient income gives the lender the assurance that the borrower will be able to repay the loan. In most cases, most students don’t even have any source of income neither do they have any collateral that they can pledge in case of default. Getting private student loans also requires that the borrower have good credit score. In fact, many students have not even started building their credit as at the point they apply for student loans. Based on this, it is practically impossible for most students to get student loans on their own without depending on somebody who can help them cosign the loan. Some parents see it as their responsibility to cosign their child’s student loan. This may be like a good thing to do but one needs to weigh the implications before inking his signature on the loan documents.
What cosigner does is to guarantee the repayment of the loan if granted. This means that if the student defaults in payment, the lender can hold the cosigner responsible for the repayment of the loan. Even though you were not the one that collected the loan, cosigning a loan makes you to be treated as if you are the one that borrowed the money. So, if the borrower defaults or misses a payment, the lender will go after the cosigner to collect his money. Even, if the cosigner doesn’t have the money to pay, the lender can take any steps legally to enforce the repayment of the loan. Besides, cosigning a loan can take a toll on your credit score. The loan is reported on your credit reported as if you actually collected it. In some cases, cosigners don’t know the weight of what they are doing until the chips are down. At that time, they may want to ask for cosigner release. But the truth is that, getting a cosigner release is not as easy as one may think. Below are some of the reasons why lenders may refuse to grant cosigner release.
Read Also: Pros & Cons of Cosigning Student Loans
Previous payments are made in the name of the cosigner: If all or most of the previous payments were made in the name of the cosigner, it is an indication that it is the cosigner that may likely continue to make the future payments. So, if the cosigner is pulling out, the lender may assume that he will not be able to get his money back as the real borrower may not be able to pay back the loan. If you have the mind of pulling out from the loan that you cosigned, it may be advantageous to ensure that all repayments are made in the name of the borrower. It does not matter if you are the one providing the money. However, banks are very smart too. They will consider other factors before granting you the cosigner release.
No proof of sufficient income for the borrower: Just as I mentioned above that banks will not grant you cosigner release just because the past payments were made in the name of the borrower. The bank will like to see proofs that the borrower now earns sufficient income that will allow him to continue with the monthly payments. The lender will not only look at the income that the borrower earns, He will also consider the debt to income ratio of the borrower. If it is too high, it is an indication that the borrower is already stressed out financially. And this may make him not to continue with the repayment without missing a payment. So, if the lender is not convinced that the borrower now earns sufficient income, you should just forget about getting the cosigner release.
History of missed or late payment: This point is very serious. If the records show that the borrower has had instances when he missed one or two payments, this has already complicated the matter. It means that if he is left alone to continue with the payment of the loan, he may likely default. Lenders believe that history repeats itself. That is why that usually dig into the payment history of any one that is applying for credit or loan so as to determine his creditworthiness. Therefore, if the borrower has missed a payment, this is enough to convince the lender that he may likely miss payments in the future. Of course, loan default usually starts with a missed payment. On this note, you may find it difficult to get you released from the loan.
Poor credit score for the borrower: Students may not have good credit score at the point when they applied for their student loans. In fact, this is one of the reasons why the lenders will always require someone to cosign their student loans. However, the expectation is that, after they graduate, they will get a good job and start building their credit. One will even expect that the student loan will help them build their credit score. This is not always the case. Some of them are novice and they don’t know how to handle their finance. If the borrower has not built his credit score to the point that is acceptable to the lender, the cosigner release will be denied.
Read Also: Questions to Ask About Private Student Loans
Therefore, if you wish to cosign a loan thinking that you can easily get out by requesting for a cosigner release, you better think twice. If you know that the responsibility that accompanying cosigning a loan will be too much for you, it is better you don’t sign. A word is enough for the wise.