After learning about the credit requirements of banks, you must be wondering if you need a cosigner for your education loan. Well, the answer is ‘Yes’ for most undergraduates.
Most applicants won’t qualify for an education loan given they have a cosigner with a bad credit score. As such, having a cosigner is very important to get an education loan. Moreover, having a cosigner with a decent credit score helps to get better terms on your education loan.
Why do you need a cosigner?
You’re taking an education loan from a private bank/NBFCs.
Since most undergraduate students have no credit history at all, thus most private banks and NBFCs offer education loans to students given they have a cosigner with a positive credit score. You can ask your parents to be your cosigner or the person in your family who has a steady income and a decent credit score.
You have a low credit score.
Most education loan applications require a credit check so as to ascertain the qualification of a student to take an education loan. Credit history depends on various factors such as - credit card history, debt repayment record and debt-to-income ratio.
If you’re an undergraduate, you won’t probably have a credit history at all. Therefore, you have to apply for an education loan with someone who does.
You have no steady income.
Moreover, with respect to your credit score, lenders also look at your income while approving you for a loan. Your income indicates if you have the means to pay back the loan. If you’re an undergraduate, you possibly won’t have any income. Instead, you’re looking for this college education to get a high-paying job later. But most of the lenders aren’t waiting to see. In such cases, you can apply for a merit-based education loan where your future employability decides your loan approval and the interest rate.
You don’t have years of credit history.
In addition to credit score, the length of your credit history is also a deciding factor for banks to qualify you for an education loan. They want to see several years of responsible credit use and on-time repayments. If you have a red flag on your report like defaulting on a loan, or series of late-repayments, the banks will possibly terminate your application.