In specific situations, when you do not have an excellent credit score or a higher debt-to-income ratio, one of the ways to make money is by finding a cohabitant or spouse to help you out. We are discussing finding someone to become a co-borrower, which is the arrangement most banks will consider and accept accordingly.
The critical point is the shared responsibility of choosing two people on a loan. This means you will be equally accountable for the repayment process as the primary borrower and the co-borrower. It is crucial to be aware of the potential disadvantages and challenges that may arise throughout this process.
While the primary borrower is the first in line, it is essential to note that if something goes wrong, the lending institution will also hold the co-borrower accountable. This underscores the potential risks of guarantor refinancing, which should be carefully considered.
Finally, in some situations, both sides will have equal responsibility for repayment of the loan, but also regarding the amount you take and dispose of it. In the further article, we will discuss each step you should take before making up your mind.
Things to Remember
It would be best to remember that most people refinance to reduce their overall expenses, mainly because they may have additional debt from unsecured loans such as personal loans or credit cards. Therefore, you may decide to find the best and most affordable option for your specific needs.
Empower yourself by conducting thorough research and comparing various offers. You can also enlist the help of a broker to guide you through the process. In any case, it is crucial to consider at least three lenders before deciding, ensuring you are in control of your financial future.
Who Can Be the Guarantor or Co-Borrower?
When considering a co-borrower, it is worth noting that some banks may require the co-borrower to be your partner or spouse. Banks perceive a lower risk of disputes among married individuals than friends who decide to take a loan together.
However, most banks generally accept co-borrowers, with only a few insisting on a spousal or partnership relationship.
On the other hand, you may be a cohabitant, another beneficial factor that will help you obtain this type of loan. For instance, if you are related to each other, the chances are high that you will get approved. Of course, you can find options accepting relatives or friends, but both parties must meet relevant requirements.
Writing an Agreement
The right to dispose and responsibility is recommended among people who borrow money together, especially if they have joint finances. This is the perfect solution for spouses because they already share their wealth within the same pool. However, others, such as friends or cohabitants, should make a binding agreement before taking out a loan.
The agreement should regulate all matters regarding payment distribution and other factors, such as tax deduction, allocation of money, and more. The written agreement should be transparent and handled with an eye to preventing potential disagreements in the future.
If you are considering the loan amount, you should consider getting legal guidance that will help you throughout the process.
Minimum Requirements
You should know that most banks will accept co-borrowers and require both to meet relevant requirements. Of course, everything depends on the lender you wish to get, but in most cases, these are common factors to consider:
- Age Requirements – Most banks will have the lowest age limit when you reach eighteen. However, some of them may increase the age limit depending on the type of loan you wish to get. The most significant age requirement is twenty-five years, which is vital to remember.
- Income Requirements – Another important consideration is ensuring a fixed income on the other side. In contrast, others will set a minimum annual income. The strictest option for annual income is 250 thousand kroner per year, which is a considerable amount.
- Payment History – Numerous banks require that borrowers not feature payment remarks, which is vital to remember. Therefore, when you wish to take a loan with a co-borrower or kausjonist, you should ensure that both do not feature collection cases. However, in some cases, you may undergo specific exceptions, mainly if you use a loan to refinance a significant debt.
- Citizenship and Residence – Numerous banks require that applicants be Norwegian citizens and residents, meaning they should have a history of tax payments within the country. On the other hand, if you are a foreigner, you will need a residence for at least three years before applying.
Remember to highlight your income by presenting a payslip for a few months and a tax return, which will determine the requirements.
Lender Will Assess Both Credit Scores
Both applicants will undergo a thorough assessment when they decide to refinance together. If each of you has a payment remark, the lender will immediately reject you. When you decide to apply together, the bank will conduct regular assessments for both individuals.
They will deal with the same thing when someone decides to apply without anyone. The relevant information and factors mentioned above will be double-checked, including payment history, place of residence, income, debts, and more.
Advantages of Using a Guarantor for Refinance
- Greater Chance That Lender Will Accept You
When you apply with someone as a guarantor for a loan you wish to take, the chances are high that you will get the approval. The main reason is that both parties will be responsible for the loan, making it less risky in a broad aspect. At the same time, banks will consider you less likely to default, meaning you will get better terms and rates altogether.
Even if you lose the profits and income due to job loss or any other problem, the other side will fit in until the first one returns to a healthy financial state. The chances are low that this will affect both of you.
Generally, getting a loan for refinancing is more straightforward than investing and consumption. The main reason is that guidelines state that when you refinance, you can rest assured and replace the old loan with a new one but with better terms altogether.
Most banks will be more sympathetic to people who decide to clear their finances and debt, meaning you can increase your chances by getting a co-borrower.
- Increase Loan Limit
Lenders will consider your debt-to-income ratio when you decide to apply together. The guidelines state that the bank should offer loans if the new debt exceeds five times the income. Besides, banks must consider whether they have enough finances to handle the debt, even if the interest rate increases by five percent from the current one.
When you apply with someone, you will double the chances of repaying and show the other side that you can handle the amount you wish to take. It means that you are more likely to get larger loans than when you apply by yourself, which is an important consideration to remember.
- Lower Interest Rates
People decide to refinance mainly to reduce interest rates because a single percentage lower will help you save plenty of money. Apart from the high chance that you will get approved when you have a guarantor by yourself, you should know that the process will most likely help you reduce interest rates.
Most banks determine the interest rates for refinancing based on everyone’s assessments. As a result, banks consider credit scores and assess both parties before making a decision.
You will get a better interest rate with a high credit score, income, ability to pay, and low DTI. Two people are safer and feature less risk than those who borrow alone, meaning you will most likely get a lower interest rate.
- Faster Pay Back
When you have a co-borrower on a refinancing loan, you will get a perfect chance of approval, even with better advantages. It is simpler to service loans when two people are responsible, especially since you will double the income and efficiently handle the process.
As a result, you will repay the loan faster, leaving you without debt and helping you easily ensure the future. Faster repayment will increase your creditworthiness, which will ultimately help you reach the desired goals. It is as simple as that.
Conclusion
As mentioned above, you should think twice before finding a guarantor because you will both be responsible for the repayment. That is why you should create a written agreement that states your responsibilities beforehand.
