How Can I Protect Myself as a Co-signer?
We have mentioned it before, but it bears repeating: it is never a good idea to be a co-signer on a loan. When you act as a co-signer, you are accepting responsibility for the debt of a person who the lender has already determined to be too risky. Not only do you have to consider the potential financial repercussions if the person should default, but you also must consider the potential damage to your relationship with that person. If you make the choice to guarantee a loan for a close friend or family member, you should take steps to protect yourself in the event that the person should default on their obligation.
Look for Release Language
Ask the lender to include language in the loan contract that will release you from your obligation if the borrower meets certain requirements, such as making on-time payments for a specified period of time.
Treat the Matter Like a Business Arrangement
Even if you are co-signing for a loved one, you should treat the transaction with the same formality as any other lender. This means putting all of the terms and obligations of the arrangement in writing and having the document signed and notarized.
Monitor the Account
Creditors are not necessarily required to notify you if the borrower defaults on the loan. You should take it upon yourself to monitor the status of the account by using available online account management tools and requesting that the creditor notify you of any missed payments.
Get Your Name on the Title
If you are co-signing a loan for a substantial piece of property, such as a house or vehicle, make sure that your name is on the title. This will allow you to attach the property and potentially resell it to pay off the loan if the borrower should default.
For more information about how to protect yourself as a borrower or co-signer, contact us to speak with one of our credit professionals.