Complete guide: Questions cosigners should ask before taking an education loan
The inability to meet the demand for a higher fee structure is quite common. Hence, most people have to take an education loan to make their dreams come true for a bright future.
The role of a cosigner at such times is very important as they automatically become equally liable for the loan repayment as the borrower if things do not go as planned.
Generally, organizations do not sanction an education loan without a creditworthy cosigner. He/ she can be a family friend, relative, spouse, guardian or parent, etc. and his/ her responsibility is immense.
Thus, it is important to know about the different questions cosigners should ask before taking an education loan.
- 7 questions cosigners should ask before taking an education loan
- 1. Why does the loan applicant need a cosigner?
- 2. What is the loan amount?
- 3. What are the terms of the loan?
- 4. Will the loan applicant be able to meet the terms of loan repayment?
- 5. In case of default, will the cosigner be able to pay the loan amount?
- 6. What are the risks involved for the co-signer?
- 7. Is there an option where the cosigner can be released from the responsibility?
7 questions cosigners should ask before taking an education loan
1. Why does the loan applicant need a cosigner?
Generally, young adults who apply for education loans have just started and have no earnings. Other times, they might have bad credit reports because of missed or late payments.
Lenders need assurance from a reputed cosigner before sanctioning an education loan to such people.
One of the questions cosigners should ask before taking an education loan is about the credit history of the borrower.
In case his/ her credit report is good but she/ he is being asked for a cosigner just because of underage then it is ok to sign alongside. But, bad credit history should make the cosigner beware of the pitfalls of cosigning.
This also helps the cosigners find out whether the loan applicant is trustworthy, as well as, responsible by nature.
2. What is the loan amount?
The co-signer must be fully aware of the total amount of the education loan. The co-signer, in no doubt, is signing alongside the borrower in good faith.
However, down the line, should anything untoward happen, the co-signer may have to be responsible for the loan repayment.
3. What are the terms of the loan?
One of the relevant questions cosigners should ask before taking an education loan is about the terms of the loan.
It includes payment term length, repayment options, when is the loan repayment going to start and what happens if the repayment premium is not on time.
The standard education loan is for ten years with a fixed monthly premium. The cosigner must remember that the loan terms, extended repayment options, and interest rates are different for private and federal students.
Cosigners must ask questions as if they are borrowing money for themselves because only then they can know about the exact loan terms.
Additional read: What is the cost of school education in India?
4. Will the loan applicant be able to meet the terms of loan repayment?
The cosigner should be fully aware of the loan applicant’s financial position and the loan amount. He/ she should ask him/herself whether the borrower has the necessary assets or financial means to fulfill the loan terms.
The cosigner should also know whether the loan applicant has any other loan in his/her name and whether he/she can continue to make payments for all of them.
5. In case of default, will the cosigner be able to pay the loan amount?
According to statistics, at least 38% of cosigners are called upon to pay up the loan amount because the loan applicant is unable to do so.
The co-signer must be prepared for any eventuality and ask him/herself whether he/she is ready to do so under unforeseen conditions.
6. What are the risks involved for the co-signer?
The cosigner should know about all the risks involved if he/she signs the education loan. If the borrower is late then the credit score of the cosigner also drops alongside him/her.
If the cosigner wants to get a loan or a mortgage then the cosigned loan will have an impact on his/her credit history.
7. Is there an option where the cosigner can be released from the responsibility?
Sometimes, lenders offer release terms to the borrower under specific terms. The co-signer must be fully aware of them to minimize the risk factor involved in signing the education loan.
There are numerous questions cosigners should ask before taking an education loan because they will also have a responsibility towards fulfilling the conditions of the loan in case of any default.
There is an inherent risk involved in being a co-signer. Hence, it is doubly important for him/her to ask the relevant questions.
Undertaking a serious discussion with all the involved stakeholders will help to clear all the doubts and understand whether it is feasible to sign as a cosigner or not.
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