The co-borrower will help in obtaining a loan
Lack of creditworthiness results in a refusal to grant a loan – but always? When deciding on a loan, we can take it with a co-borrower, who will be equally responsible for the return of the debt, although he does not have to pay monthly loan installments. However, if someone asks us to become a co-borrower, then it is better to seriously consider the risks we incur.
If the bank refuses to grant us a specific loan amount
we can take out a loan with a co-borrower, i.e. a person whose income will be included in the creditworthiness test. Anyone can be such a person, i.e. a family member, friend, acquaintance or accomplice, provided that he/she has sufficiently high, documented income.
Most often such a person is a spouse. When deciding on a co-borrower, we should also remember that he must have a positive credit history, as the bank will have to verify it.
Young people whose low income does not allow them to obtain a mortgage from a bank may ask for help from one of their parents so that, by becoming a co-borrower, their creditworthiness will increase, and thus help to obtain the required loan amount. However, the maximum age limit of a co-borrower is limited – depending on the policy of the bank.
A person who is a co-borrower
Is equally responsible for the repayment of the entire debt. So if there is a break in repayment or even a loan agreement is terminated, each of the co-borrowers is equally liable. Interestingly, the debt will be collected first from the person from whom the bailiff will recover the debt faster and effectively. Another downside for the co-borrower is that his own credit capacity will decrease until the loan is repaid.
Taking a loan with a co-borrower makes sense if we have an additional source of income, which, however, is undocumented, so the bank cannot take it into account when testing our creditworthiness. Otherwise, we may lack the funds to pay the debt, because according to the bank’s assessment, our earnings in relation to the costs incurred do not allow for obtaining a loan. The co-borrowers signature on the contract with the bank does not guarantee that we will be able to repay all installments of the loan on time.
A good solution to take a loan with a co-borrower is that the benefits of the loan will flow evenly for all borrowers. This can be, for example, opening a joint business, buying a caravan or recreational plot, which will be used alternately by all co-borrowers – however, repayment of the loan will also be divided between them.