Final answer:
When we sign a contract to pledge assets for security to a loan, it is called cosigning. Cosigning is when another person or firm legally pledges to repay some or all of the money on a loan if the original borrower does not do so.
Step-by-step explanation:
When we sign a contract to pledge assets for security to a loan, it is called cosigning. Cosigning is when another person or firm legally pledges to repay some or all of the money on a loan if the original borrower does not do so. This helps provide additional guarantees to lenders and increases the chances of loan approval.
For example, if a student applies for a student loan and does not have a credit history or steady income, they may need a cosigner such as a parent or relative to pledge their assets and guarantee repayment. This reduces the risk for the lender and can help the student qualify for the loan.
Overall, cosigning is an important financial arrangement that provides security for lenders and increases the likelihood of loan approval for borrowers who may not meet all the required criteria.