Things to Know Before Becoming a Loan Cosigner
Don’t Become a Loan Cosigner Until You Read This!
At some point in your lifetime, you are very likely to have a relative or close friend ask you to “do them a big favor” and cosign a loan for them. That will seem like a pretty innocent request, however, you may be signing up for more than you originally thought. Before you agree to become a loan cosigner there are many things you will need to consider and knowing the basic rules and regulations of what co-signing a loan makes you responsible for is a great start. When you cosign a loan keep in mind that the following rules and laws apply simply by you putting your signature
on the paperwork for them:
- You will be forced to pay this debt if the other person does not pay. Ensure that the amount of money you sign up to pay is an amount that you can afford to pay.
- In addition to paying the amount that the loan is worth, you will also have to pay any collection or default fees that the company charges (these can be hefty).
- Whoever collects the credit can come to you at will to collect the payment. They can come collect the debt without even contacting the borrower first (depending on which state the loan is made in). As the cosigner, you are subject to the same collection methods as the borrower, including garnishing of wages or lawsuits, among others. If the money is not paid your credit will be affected.
Cosigners Often End Up Paying These Loans:
It is also worth noting that often times these loans from certain lenders end up going into default, which means that the loan cosigner is the one being asked to repay the loan. By becoming a cosigner to a loan, you are taking a risk that a professional lender is not willing to take. If the person you are signing for met the borrower requirements you would not have to cosign their loan in the first place.
In most states, if the original signer misses a payment, that payment can immediately be collected from the loan cosigner (you). Studies have shown that at least 3 out of every 4 co-signers have had to send a payment at some time throughout a cosigned loan. On top of the monthly payment already due, you may be subject to additional fees such as late fees. You also may experience wage garnishing or lawsuits if you are not willing to pay the loan upon it becoming overdue.
If You Do Cosign:
Remember these as some tips if you do cosign a loan for someone:
- Be sure if that person defaults on the loan that you have the money to pay it.
- Understand that cosigning the loan may stop you from being allowed to take on other debt against your own credit limit.
- Understand the amount of money you might end up owing in a worst-case scenario.
- Request a written notice if the person you cosign for misses a payment.
- Get a copy of all statements and details on any loan you cosign on from the lender so you understand all conditions thoroughly.
- Check your state for other loan cosigner laws that may apply.
For more information on cosigning loans please feel free to contact us.