Final answer:
Hiring companies that hire loan signers do so to mitigate risk for lending institutions and increase the chances of loan approval for borrowers.
Step-by-step explanation:
In the financial capital market, before a bank makes a loan, it requires a prospective borrower to fill out forms regarding income sources. Another approach is to require a cosigner on a loan, who legally pledges to repay some or all of the money if the original borrower does not. This allows the bank to have more confidence in the repayment of the loan due to the cosigner's financial responsibility.
By having a cosigner, the bank has an additional party who can be held accountable for repaying the loan if the original borrower defaults. For example, if a student with limited income and no credit history applies for a loan, a parent or guardian may act as a cosigner to increase the likelihood of loan approval and repayment.
Hiring companies that employ loan signers are responsible for assessing the creditworthiness of potential cosigners. They evaluate factors such as the cosigner's credit score, income, and financial stability to determine if they are suitable for the role. Ultimately, hiring a loan signer helps mitigate the risk for the lending institution and increases the chances of loan approval for the borrower.