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I am looking to hire a co-signer online for a loan that’s been approved pending co-signer approval. I completely comprehend that my financial assessment is sketchy however I would like to offer some clarifications as to why Things adversely affected my credit score and see if anyone would be willing to share in the loan. Is there any such service ? And does it work?

Jay
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    Is there really much of a practical difference between "approved pending co-signer approval" and "not approved"? – brhans Dec 23 '20 at 00:24
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    Say I'm your cosigner-for-hire. What's in it for me? – Harper - Reinstate Monica Dec 23 '20 at 01:17
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    Why would anyone do this? If you do not pay the loan the cosigner is fully responsible (it's not a "backup"). If the bank doesn't trust you to pay the loan why should a stranger on the internet? – D Stanley Dec 23 '20 at 02:38
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    More specifically, why would somebody do this who wasn't willing to simply loan you the money directly? – Kevin Arlin Dec 23 '20 at 05:22
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    @DStanley I'm not sure what you mean to say it's not a "backup"; that's exactly what it is. A backup who, as you say, will be fully responsible for the loan if the primary doesn't pay. – Dean MacGregor Dec 23 '20 at 13:43
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    What I meant was that co-signers are equally responsible for paying. It's not a responsibility that kicks in only if the "primary" does not pay (there is no "primary" legally). – D Stanley Dec 23 '20 at 13:54
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    @DeanMacGregor this may be the case most of the time, but it's only an agreement between the 2 borrowers. The bank does not care whether there is a primary or co-signer, in their eyes, anyone who is a borrower on the loan is just a borrower on the loan, they will come after all of them to get their money equally. – Najel Dec 23 '20 at 15:02
  • @Najel Isn't the difference that the bank can't take the cosigner's home if they default on the loan? – Barmar Dec 23 '20 at 16:50
  • @Barmar that is completely unrelated. If some home is used as collateral for a loan, that would be taken. But if there is no collateral, the bank could come after anything any of the borrower's own. Not directly, but they could sue, and a court might force them to sell property to pay back the lender. – Najel Dec 23 '20 at 17:09
  • @Najel Sorry, I misunderstood this to be about a mortgage. – Barmar Dec 23 '20 at 17:10
  • @Barmar, the bank can only foreclose on the asset(s) collateral to the loan, in the case of a home mortgage, the lender can only foreclose on that house, in the case of a case loan, only that car. BUT, if the lender stops getting paid, both the borrowers will be sent to collections for the whole remaining debt. If the car is repossessed and sold at auction for less than the remaining loan amount both of the borrowers are responsible to pay the remainder until its paid. Being a cosigner sucks because you only get the liability, the other person gets the asset and a liability. – quid Dec 23 '20 at 17:13
  • @quid During the mortgage crisis, many borrowers defaulted because the houses were underwater. I never heard about lenders coming after them for the difference. I assumed that the lenders accepted this risk of property values declining. OTOH, I can understand it for car loans, since a car's value drops 30-40% per year, so it's relatively poor collateral. – Barmar Dec 23 '20 at 17:23
  • @Barmar Many (most?) states limit or disallow mortgage lenders from seeking assets beyond the property itself. IIRC California completely disallows this and was where a large portion of defaults occurred. – JimmyJames Dec 23 '20 at 17:28
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    @Najel: Not entirely true. In a number of states, a primary residence (and sometimes things like professional tools) are covered by homestead laws, so that creditors can't seize them for debts unrelated to the property. (That is, they could foreclose on a mortgage, but not your car loan.) See e.g. https://www.assetprotectionplanners.com/planning/homestead-exemptions-by-state/ – jamesqf Dec 23 '20 at 17:29
  • @Barmar that's why I used car loan as the example not mortgage because various laws protect primary residence borrowers in the US. In that case the cosigners risk is probably limited to the annoying collections calls and deterioration of their own credit for nonpayment of the mortgage. And this mortgage protection may not apply to investment property depending on jurisdiction. – quid Dec 23 '20 at 17:41
  • @jamesqf I looked into this not too long ago and in a lot of states where you can go after other assets, it's often limited. For example New York allows deficiency judgments but based on the court's determination of fair market value of the property, not the sale price. – JimmyJames Dec 23 '20 at 17:44
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    If I was thinking of being a cosigner-for-hire, I would vet the people I cosigned for quite strictly. And the biggest red flag would be someone looking for a cosigner-for-hire. – DJClayworth Dec 23 '20 at 20:49

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A cosigner is 100% responsible for the entire debt. The lender would track down the cosigner and enforce the terms of the loan if you are unable to pay.

Why would a person you don't know take on this gigantic risk? Unless you are willing to pay them a huge fee. They would also have to research your ability to pay, and then demand collateral, different than the one that is being offered to the original lender.

mhoran_psprep
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    Given that "a cosigner is 100% responsible for the entire debt", an online cosigner is essentially acting as insurance (and that "huge fee" you pay them is the premium). – RonJohn Dec 22 '20 at 23:11
  • @RonJohn Do any insurance agencies offer mortgage insurance for banks, by acting as co-signers in exchange for payments by the home owner? – nick012000 Dec 23 '20 at 09:07
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    Mortgage insurance (aka PMI) absolutely exists, and is mandatory if you provide a down payment of less than 20% of property value. Maybe negotiate higher PMI premiums. – RonJohn Dec 23 '20 at 09:17
  • @Barmar “What’s the cosigner’s risk?” The bank might sue the co-signer instead of selling the property - especially if the property is worth less than the loan (eg due to a global pandemic causing demand to disappear). Or the bank might sue the co-signer anyway for the bank’s own reasons. If there was no risk to the co-signer, there would be no point for the bank to require a co-signer. – Lawrence Dec 23 '20 at 17:13
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Let's think about how to make money co-signing loans.

  1. First, we'd need a large pool of money (say, $1 million), so that we could operate profitably. This allows us to co-sign on many loans at once, which spreads our risk across many, many borrowers. Sure, some of them will default, but (we hope) most of them will successfully pay off their loans without our help, so (we hope), we stand to make profit on the averages even if some of the borrowers we co-sign for do fail to pay their loans.

  2. To make sure we recoup our money — rather than just hoping — we need to make sure we don't have to repay most of the loans ourselves. That means, we need to turn away the riskiest borrowers. It also means that for borrowers who are more risky (but still tolerable to our overall strategy) we need to charge more for our services.

    We also need to account for the size of each loan, and charge more for larger loans, since co-signing with 100 borrowers on $30k loans, where each borrower has a 3% chance not to repay their loan, means we will pay $90k worth of loans, whereas co-signing on 100 $3k loans at the same risk would cost us $9k — 10 times less.

    So, we must charge each borrower a percentage of the loan amount which accounts for the risk of that individual borrower not repaying their own loan.

So far, so good. At this point, we've described the strategy that banks use to evaluate credit-worthiness of loan applicants. It's a reasonable model, since as a profitable co-signer, we are essentially agreeing to lend money to our co-signer, using our own credit-worthiness as collateral to make sure we pay the money to them, so that they can then make their payments to the bank.

  1. So far, so good. However, since we're co-signers, we're working exclusively with clients who banks consider too risky to lend to. To compensate for this, we must charge a very high interest rate, to absorb the risk that they will not repay. If only 10% of our clients will fail to repay their loans, then we must charge 10% of each loan just to break even.

    However, by charging 10%, we further increase the chance that our client will default on their loan, since they now must pay money to us that would have gone to the bank. So, we have to increase our interest rate even further to account for the effects that our business has on our clients' credit worthiness. We can compensate even further by demanding (and accepting) unusual forms of collateral that a traditional bank wouldn't accept.

We have now arrived at the loan shark business model.

Who would want to be a co-signer for hire? Well, basically, the same people who would want to lend money, because they're taking exactly the same risk in the hopes of being profitable.

  1. Banks. Banks make money by using the money provided by their account holders1 to lend money to other people who are likely to repay, and by charging interest. This is exactly what a co-signer does, since the bank expects them to pay on your behalf. From the bank's perspective, the credit-worthy co-signer is the one paying off the loan, not you. The reason you're on the loan at all is to help you build credit.

  2. Loan sharks. These are businesses which offer loans to people that the bank considers unworthy of credit. Because they are dealing with only the highest-risk borrowers, they must charge much higher interest rates in order to remain profitable. Because these highest-risk borrowers are also the most vulnerable, a loan shark who creatively abuses their clientele stands to make even more profit.

  3. A private investor. This is an individual with a pile of cash they'd like to turn into two piles of cash, but without having to actively do something themselves. You could borrow money from a private investor to start a business, for example.

1 This is the reason you want your bank accounts to be FDIC insured in the US. When you open a typical bank account, they're lending your money to someone else, with a promise to repay you on-demand.

Who would be a co-signer without hope of being profitable?

  1. Someone who knows you personally, and trusts you to pay back the loan, and is invested in your success as an individual.
  2. Someone who makes poor financial decisions, or is otherwise naive.
  3. Someone who — because they are extremely charitable — would be willing and capable of gifting you the money without a loan process.
jpaugh
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    On #3, note that your typical venture capitalist expects many startups to fail, with the large share they take of the few successful ones making up for it. If this were to be considered as a loan, the effective interest rate would be several hundred percent, if not more. – jamesqf Dec 23 '20 at 17:34
  • @jamesqf That makes sense! I was actually thinking in terms of Investment Joy on YouTube, where he buys properties and businesses with OPM. Less explosive than start-ups, but either works. – jpaugh Dec 23 '20 at 21:07
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If you’re in a sketchy financial situation as you say, then once you’ve got a loan with a co-signer you can just stop making the payments. The lender will come after the co-signer, not after you, because they’ll be easier to get the money out of. So the fee you’re going to be charged for such a service is the full amount that you’re borrowing, making it pointless.

Mike Scott
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  • "So the fee you’re going to be charged for such a service is the full amount that you’re borrowing, making it pointless." Wouldn't the fee actually be the risk of default * the full amount borrowed, plus a bit of profit? – nick012000 Dec 23 '20 at 09:09
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    @nick012000 One has to assume that the risk of default is pretty much 100%, since getting a co-signer makes it safe to default. – Mike Scott Dec 23 '20 at 10:04
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    @nick012000 Considering how loan-sharks operate, the risk of default is probably less than 100%; but even a 10% risk of default would lead to a huge interest rate, because whatever rate the "co-borrower" charges, their very fee increases the risk of defaulting further. – jpaugh Dec 23 '20 at 11:04
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    @jpaugh You are forgetting that loan sharks often operate what is effectively a Ponzi scheme. If you default on your loan, they just offer you a bigger loan to pay off the first one. That means (1) the default doesn't actually show up as anything significant in their financial accounts and (2) after a few repetitions, your loan is big enough that it is worth enforcing via the courts - there's no profit in taking you to court to enforce a $100 default, but plenty of potential profit in enforcing $100,000. – alephzero Dec 23 '20 at 13:09
  • @alephzero Honestly, I've never had the displeasure of dealing with loan sharks. I suspected that many loan shark loans never get paid back; I just didn't know quite how they could make with a default rate near 100%. The little that I do know --- summarized in my answer --- is bad enough. – jpaugh Dec 23 '20 at 21:24
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You did not specify the country, nor the type of financial obligation you're getting into.

In the unlikely case you're thinking about signing a lease for an apartment in Japan, and you need a cosigner who's responsible for any non-payments, this service does exist, and is provided by cosigning companies.

The idea is simple: the lender (landlord or owning company) doesn't want to take the risk of non-payment, and doesn't want to get into the business of credit checks and collections, so they ask for a cosigner (保証人 - guarantor person). However, a lot of people don't have cosigners, so instead the lender can accept (or even require) the usage of a cosigning company (保証会社 - guarantor company).

The cosigning company does a credit check on you, and decides whether or not they believe you will be able to fulfill your monthly payments. If the cosigning company thinks you will be able to pay, they generally charge half a month's rent every year for this service. If the company doesn't like your situation, you can try other companies, or try renting something smaller instead.

This is a very common practice here in Japan, and having a cosigning company is usually safer for the lender, so in many cases lenders don't accept individuals as cosigners, and require the usage of a cosigning company.

All of this is a long explanation for something very similar to insurance. In fact, the major cosigning companies are actually subsidiaries of large insurance conglomerates.

I think this doesn't exist for mortgages, consumer, vehicle, or other types of loans. I also don't know if this exists outside of Japan.

Panda Pajama
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  • This can exist in the US, but the main place I'm familiar with it happening is the New York City rental market, which has a lot of its own quirks and particularities. Insurent is one of the big players, and there's another called "The Guarantors," though only some landlords in some states will accept these companies, and only under certain conditions. None of these companies will cosign a loan though. – Zach Lipton Dec 23 '20 at 17:17
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Consider this:

Pretend this website is an online co-signer finder.

The banks and their infinite money wisdom have determined that you are not financially responsible enough to handle the loan.

Please explain why I should co-sign this loan and accept 100% responsibility in the event you fail to pay the loan?

Failure to pay could even be on purpose on your end so why should I help you attain this loan?

Being a co-signer is not just some formality, it is an agreement that the lender has legal recourse to go after all of the signers if payments are not made, period.

MonkeyZeus
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