CO-SIGNING A LOAN
Making wise decisions is very important in any
financial situation. Cosigning a personal loan entails financial
responsibilities and risks that you need to understand completely
prior to putting your signature on any loan documents.
Should I co-sign a loan?
What does cosigning a loan mean?
The basics of loan cosigning are easy to comprehend. If the
individual that you are helping with their loan
default on their
payments, then you become liable as a cosigner.
People with bad credit are typically those that
will necessitate a cosigner for a loan. Another situation when there
may be need for a cosigner is if the applicant has a high debt to
income ratio. Having high
debt to income will appear as though the
borrower may have a difficult time making payments. For example, it
is very common for a monthly mortgage payment to be substantially
higher than the average income percentage that is usually
recommended to be spent on a home.
Who is considered an eligible cosigner?
Having good credit is what will make you qualified to cosign a
personal loan. If you are thinking about being a loan cosigner, you
must take into consideration that your credit rating is going to be
on the line. If the personal obtaining the financing neglects to
make their payments and defaults on their loan, or even just makes
late payments, your credit rating is going to be negatively
In reality, you are not only putting your credit at risk, but
depending on the loan amount and your capability of paying it back
if the borrower defaults, you also put your home at risk. If the
borrower defaults and you are unable to repay the loan, since you
cosigned the loan, the lender has the right to take legal action
against you and collect. And that will equate to going after your
house if you are a homeowner. If you do not own a home, they will go
after your car or any other sort of personal property of value.
How do I decide if cosigning is a good idea?
There are emotional strings that will impact your decision to
cosign a loan. You are not going to be helping a stranger. It will
likely be someone very close to you; a friend or family member. It
is important to not let your emotions impact your decisions. It is
natural to want to help those we care about. But you need to
carefully analyze the person asking for help. Do you think they will
perform good loan practices by making payments timely and in full
every month? If you have any doubts that they will not, do not
cosign for them! Get more info about why
co-signing is a bad idea.
Prior to cosigning, it is important to evaluate all of the
variables, as well as fully comprehend all of the responsibilities
that you are obligating to. After analyzing the impact of getting
yourself involved and determining if you would be able to, or want
to repay the loan if needed, you should think about if enabling the
person you are helping to take on more debt is the best thing you
can do for them.
What happens if the loan defaults?
If the loan defaults, as the co-signer you become obligated for
the payments. But you will have options. Not paying the loan at all
is not a smart choice since you will only be damaging your credit
and run the risk of losing assets via a judgment. However, you
should reach out to the creditors and explain your situation. They
will likely work with you and work out a payment plan for you with
lower interest rates. In addition, in attempts to get back as much
money as possible, some creditors will even only look to recover a
certain percentage on the dollar of the monies owed as opposed to
the full amount.
Take time to analyze all of the pros and cons of being a loan
consigner. Be certain that you comprehend all of the hazards and
responsibilities. After doing that, you should think about if
cosigning the loan is the most sensible, long-term option for the
borrower and how it can affect your future relationship with them.
But, ensuring that your finances are safe is the most important
angle to consider.
What You Need to Know About Co-signing
Getting a Personal Loan With a Cosigner
Getting Out From Being a Cosigner
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