How Do US Lenders Evaluate a Co-Signer?
While a co-signer can help secure you a loan, it does not mean that you can bring in any person to co-sign your loan. A co-signer has to have the capacity to pay back your loan, and lenders will evaluate whether he or she has that ability. Generally, lenders consider a guarantor’s debt-to-income ratio, net worth, and credit score when they consider your loan application.
Some lenders may also ask a co-signer to offer something up as collateral, which is usually enough to back a portion of your loan or your entire loan.
The impact which your guarantor has on your loan application hinges on the method which your lender chooses. Generally, there are three ways lenders treat a co-signer.
Best Credit Method
Lenders only consider the one with the finest credit profile and fully disregard those with lower credit scores.
Weighted Average Method
Lenders put more emphasis on the credit of the business owner than that of the non-owner.
Non-Weighted Average Method
Lenders consider your and your guarantor’s credit equally.