The Implications of Co-Signing

Co-signing is not a duty to be taken lightly. If someone asks you to co-sign for them-their car, mortgage, loan, or otherwise it is important to know the implications and understand them well before agreeing to do so. An individual would need a co-signor in the event that they do not have good enough credit or any credit.

If you do take on the responsibility of co-signing you have to understand that you are fully responsible for the loan. If the primary borrower fails to make their monthly payments, the creditor can come after you. You have to be prepared to pay any fees, outstanding balances, and other collection costs which can potentially add up if the primary borrower defaults. Some loan payments such as mortgage payments can be quite steep. Be prepared and ensure that you are well informed of the amount of the loan and what the monthly payments are. Financially you should be prepared to undertake the cost of the full loan payment and also have some money saved for non sufficient fund fees, penalty fees, collection costs, and anything other potential fees which could follow.

If you cannot afford to undertake the payments on part of the primary loan holder, your credit will be affected. You should ask the lender to confirm with you immediately after a payment has been missed. This way you will not find out much later, when you are responsible for a lump sum at once. Make sure you get documentation of all paperwork and loan repayment schedules. If you are willing to take on such a big responsibility you must be smart about it.

You should also know your lingo. Co-signing and guaranteeing a loan are different. If you guarantee a loan for someone the lender must demand payment from the primary borrower before going after you. By co-signing you are just as responsible for loan payments as the other individual is.

Asking as a co-signor or guarantor is not a responsibility to be taken lightly. Do your research, keep documentation, and ensure that you are more than financially stable to take on the loan if the other person defaults.