Loan Cosigner: What to Know
Don’t Become a Loan Cosigner Until You Read This!
At some point in your lifetime, you will likely 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 initially thought. Before you agree to become a loan cosigner, there are many things you will need to consider. Knowing the basic rules and regulations of what cosigning 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. Ensure that the amount of money you sign up to pay is an amount you can afford.
- In addition to paying the amount 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 manage the payment. They can come to 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 these loans from specific lenders often default, meaning that the loan cosigner is asked to repay the loan. By becoming a cosigner to a loan, you are taking a risk that a professional lender is unwilling to take. If the person you are signing for meets the borrower’s 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 three of every four cosigners have had to send a payment during 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 unwilling 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 you have the money to pay if that person defaults on the loan.
- Understand that cosigning the loan may stop you from being allowed to take on other debt against your credit limit.
- Understand the amount of money you might owe 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.