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 impacted.

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.

In conclusion...
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.

Related Reading:  
Co-signing Facts  
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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