What is the correct definition of collateral for potential cosigners?

A.   The cosigner’s credit history

B.   The cosigner’s past record of paying on time

C.   The cosigner’s finencial assets, such as a house or car

D.   The cosigner’s current financial situation

Answer:- The correct answer is C. The cosigner’s finencial assets, such as a house or car

A cosigner pledges an asset or property that can be used as security to repay a loan and it is known as collateral. If the main borrower does not return the loan as promised, then lender can take away or sell what they put aside by way of security in order to recover its losses.

Under the three options, option C “The cosigner’s financial assets such as house or car” best defines collateral for potential cosigners. A good credit score of a cosigner, past experiences on time payments or current financial status are not in essence collateral. What collateral would be, however was not specific assets like real estate property or vehicles but the financial securities that were agreement to forfeit by cosigner in case of nonpayment. The lender wants to learn that the cosigner has something valuable which could be sold if necessary.

Hence, in summing up collateral for a prospective cosigner means property or other assets promised as security and not merely average credit history or financial status. Tangible financial assets that a lender may accept from the cosigner as collateral when approving a loan include houses, cars, stocks, bonds and savings accounts.