Home is really big ticket item for a middle class individual as it entails several financial commitments. Mortgage loan, or simply a home loan, is also a huge commitment and involves a whole bunch of paperwork. But the most important thing is the income and credit score after which you qualify for a loan. For those who have an income lower than the eligibility levels, the banks also give the opportunity of inviting co-borrowers into your loan.
Now, if you have been asked by a close friend or a relative to be a co-signer for his home loan, do not just jump into the deal. You might completely trust your friend, but you should not forget that it’s a dog eat dog world. So before you agree, here are a few facts related to co-signing that you must consider-
Responsibility Comes With Risks
Co-signing a home loan is not just a goodwill exercise that you can do for your friends. It puts on you as much responsibilities as the primary borrower himself. If the primary borrower fails to make the payment or if anything else goes wrong, you will be held equally responsible. The proceedings and payments of this loan will also have direct impact on your credit score.
You should know that it is an alternative the bank offers to the rejection of home loan application. A bank will ask someone to co-sign a home loan, only if the primary applicant’s income or credit score is not good enough. He has a bad credit history or his income is not a satisfactory proof that he will be able to repay such a long-term loan. So this is a red flag itself.
Terms and Conditions
It might sound petty and you might have ignored a number of T&C so far, but this is the real deal. And you wouldn’t ignore it now that you know it impacts your CIBIL report. So before signing on the dotted line, you must know the amount of loan you are vouching for, the payment tenure, interest rate and the consequences in case of any wrongdoing. All this is important because you do not want to be surprised (or shocked) in case the primary borrower defaults.
Negotiate for a Better Deal
A bank is ready to make you co-sign a home loan because you have a good credit score. With help of a impressive score, you can also negotiate with the bank for a lower interest rate or a longer tenure. You should also ask them to send a copy of bank document to you as well, so that you can keep track of payments and manage it accordingly.
Co-signing a home loan is a huge responsibility and it will reflect in your CIBIL report for a long time. So, you must tread with caution. Once you sign, you will be responsible for repayment as much as the primary borrower. There is no such exit strategy in case of a co-signed loan and it will only end by refinancing it entirely in the name of primary borrower which means in any case, the loan has to be paid in full.
Though we are not saying that co-signing is always a bad idea, but it still entails several implications. So you should step back if there is even a tad bit of uncertainty.
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