Thursday, February 27, 2020
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What it means to be a Co-Signer

When you co-sign for a co-worker, friend, or a family member, you are not only lending your good name and solid credit history, you are also accepting responsibility for the debt as well as a certain amount of risk.

Lenders require a co-signer when the potential borrower does not have a credit history, is a poor repayment risk, has no significant employment record or no collateral for loan security. So, why would you risk co-signing a loan for someone the financial institution is reluctant to lend?

Consider being a co-signer when you are interested in seeing the borrower get credit and, ultimately, start building his or her own credit history. You need to know the purpose of the loan, the type of loan, the terms and the reason the borrower cannot get credit on his or her own. You need to be aware that your finances will be scrutinized as well. If you cannot handle the payments, you cannot co-sign.

You are being asked to guarantee the debt. Think carefully before you do. You may have to pay up to the full amount of the debt if the borrower does not pay. You may also have to pay late fees and/or collection costs, which increases the amount. The creditor can collect this debt from you without first trying to collect from the borrower.

The creditor can use the same collection methods against you that can be used against the borrower, such as suing you, garnishing your wages, etc. If this debt is ever in default, that fact may become part of your credit record.

Beware of your responsibilities before co-signing for someone.