When you co-sign any type of loan, you are taking on the risk the lender
would not; ensuring that the person you co-sign for is going to make the
payments. If they do not, you are going to be responsible for the owed debt.
When determining if you should co-sign a loan for someone, you need to consider
– Will you be able to pay the loan if the borrower goes into default? If
you can not, not only will your credit be adversely affected, you can be sued by
the lending creditor.
– When you co-sign a loan, your chances for obtaining approval for a loan for
your own personal use Declines because of your current obligation. More
specifically, the debt you co-sign for is considered your debt.
– If you secure the loan you co-sign for with some sort of personal
property, ie your home or car, you run the risk of having these items taken
away from you if the loan goes into default and you can not pay.
– If the borrower does not pay their loan, not only will you become
responsible for the debt, you are also going to be responsible for any of the
late fees and collections associated with the over-due debt.
You should also do the following when co-signing a loan:
– Get in touch with the lender and make sure that you will be contacted in
writing as soon as soon as the borrower is late on a payment. This will give you
time to get in touch with the borrower and fix the situation before the account
goes into collections. If the account does enter into collections, you will be
responsible for paying off the entire debt at one time.
– Get a hold of copies of all the stipulations and terms of the loan.
Some More Advice to Follow If You Are Going to Co-Sign a Loan
Prior to co-signaling, you should contact the creditor to see if your can
negotiate your liability if the loan goes into default. More specifically, you
can have your liability changed so that you only are obliged to pay only the
loan balance and not any other late fees. It is always a good idea to get any
final, negotiated Clauses in writing.
What Are the Benefits of Being a Loan Co-signer?
Co-singing a loan can be a good idea if you are certain that the borrower is
going to repay the money. For example, co-signaling makes sense if you are
the parent of a child with no credit, but a steady income, looking to buy a home
for the first time. You will help your child get the mortgage financing them
are looking for, while helping build their credit rating.
It is very common for someone's credit to be adversely affected as a result of
divorce. This will hurt their ability to get approved for loans and credit even
though they have a steady income. Co-singing a small personal loan in this
instance will help them re-establish their credit.
In conclusion …
As mentioned, there are instances when co-signing a loan is harmless.
However, the majority of the time, it is a very risky move. As a matter of fact,
studies have shown that co-signers end up paying the debt of the borrower 80% of
the time. When co-signing any loan for any purpose, friend of family, PROCEED