The role of a co-signer in international student loans explained
A co-signer can boost your chances of securing an international student loan. Learn their role, responsibilities, and explore co-signer and no co-signer loan options with Prodigy Finance
When Indian students dream of studying abroad, securing a loan to fund their education is often a crucial step. However, international student loans can be challenging to obtain due to a lack of established credit history or collateral. This is where a co-signer plays a vital role. In this blog, we will explain what a co-signer is, their responsibilities, and how they impact a student’s ability to secure a loan—particularly in the context of international loans offered by Prodigy Finance.
What is a co-signer in student loans?
A co-signer is someone who agrees to share the legal responsibility of repaying a loan with another borrower. This individual, typically a family member or close relative, helps lower the lender’s risk by providing additional financial security for the loan. For international student loans, especially those taken to study in countries like the U.S., UK, or Canada, co-signers play a crucial role in helping students secure funding especially when they lack sufficient credit history in their host country.
Why is a co-signer important for international students?
International students often struggle to obtain loans due to several factors:
Lack of credit history: Most international students do not have a credit history in the country where they are seeking a loan. Since many lenders use credit scores to assess risk, the absence of a credit record makes approval less likely.
No collateral: Many loans require collateral, such as property, to secure the loan. However, international students typically do not own assets in their host country.
Higher risk: Lending to international students is considered high risk due to uncertainty surrounding their ability to repay the loan, especially if they are unfamiliar with the financial system in their new country.
A co-signer alleviates these concerns by providing financial assurance on behalf of the primary borrower. The co-signer typically needs a good credit history and stable financial background to increase the chances of loan approval and secure favorable terms.
Responsibilities of a co-signer in international student loans
A co-signer’s responsibilities go beyond merely signing the loan agreement. Here are their key obligations:
1. Financial responsibility
The co-signer and the primary borrower share equal responsibility for the loan. This includes covering any missed payments or even the entire loan if necessary. If the student defaults, the co-signer’s credit score will also be impacted.
2. Legal responsibility
By signing the loan agreement, the co-signer legally commits to the loan’s terms and conditions. This means that if the borrower fails to repay, the lender can pursue the co-signer for payment. A defaulted loan can negatively affect the co-signer’s financial health and make future borrowing more difficult.
3. Monitoring the loan
Although the co-signer is not expected to manage the loan actively, they should ensure that the borrower makes timely payments. Setting up reminders or staying in touch with the student can help manage repayment schedules effectively.
4. Impact on credit score
Co-signing a loan influences the co-signer’s credit score. The loan will appear on their credit report, and their credit score will be affected by their combined repayment behavior. While timely payments can have a positive effect, missed or late payments can harm their credit standing.
The role of a co-signer in securing Prodigy Finance loans
Prodigy Finance offers student loans for international students pursuing higher education abroad, and co-signers can significantly enhance a student’s chances of securing a loan. Here’s how:
1. Strengthening the loan application
Prodigy Finance provides loans to international students, but applicants without a strong credit history may struggle to get approval. A co-signer strengthens the application, increasing approval chances by reassuring the lender of repayment security.
2. Lower interest rates
A co-signer can help lower the interest rate* on the loan. This results in a more affordable loan, which is crucial when taking on significant debt for studying abroad.
3. Loan approval for students without collateral
Unlike traditional loans that require collateral, Prodigy Finance loans do not necessarily need assets like property. A co-signer helps to provide the additional assurance for approval, even without collateral.
4. The co-signer’s credit history matters
When selecting a co-signer for a Prodigy Finance loan, their credit history and financial standing significantly influence the loan terms. A strong credit history can secure better terms, whereas a poor credit record may increase interest rates or limit loan options.
Choosing the right co-signer for your student loan
When selecting a co-signer for an international student loan, especially from lenders like Prodigy Finance, consider the following criteria:
1. Good credit score
The co-signer’s credit score should ideally be 650 or higher to secure favorable loan terms.
2. Stable financial situation
A stable and consistent income reassures lenders that the co-signer can cover repayments if necessary.
3. Close relationship
Choosing a parent, guardian, or another trusted family member ensures accountability and trust.
4. Willingness to take responsibility
The co-signer must fully understand the financial and legal implications before agreeing to the commitment.
Alternatives to co-signer loans
For students unable to find a co-signer, there are alternative options:
1. No co-signer loans Some lenders, including Prodigy Finance, offer loans without requiring a co-signer. These loans are typically granted based on the student’s academic qualifications, university reputation, and potential future earnings.
2. Scholarships and grants
Many international students reduce their financial burden through scholarships and grants, which do not require repayment.
3. Collateral-based loans
Some students may use property or assets in their home country as collateral for a loan. However, this option requires careful consideration of the associated risks.
Conclusion
A co-signer plays a crucial role in securing student loans for international students, particularly when no collateral or credit history is available in the host country. By providing a financial safety net, co-signers help students access education abroad without excessive interest rates or loan denials.
For Indian students looking to study abroad, Prodigy Finance offers an excellent option, where having a co-signer can improve loan approval chances and lead to better terms. However, it is essential to choose the right co-signer and ensure they are fully aware of their responsibilities.
Whether opting for a co-signer loan or exploring alternatives like scholarships or no co-signer loans, understanding the available options and responsibilities will help students make informed financial decisions for their education abroad.
Co-signer loan option available for Indian resident students & co-signers only. Loan and promotion offer are subject to our eligibility, funding, and credit assessment criteria.
*Representative APR 10.12% variable. APR includes interest + mandatory fees (All-inclusive rate of borrowing).
*Prodigy Finance Ltd is authorized and regulated by the Financial Conduct Authority in the United Kingdom
