Should You Be a Cosigner of a Loan?
The answer to this question depends on the person you are planning on cosigning for and whether or not you are in a good financial state. A cosigner is someone who is responsible for the remainder or the whole loan amount if the applicant defaults on the loan. You act as a co-applicant. Anything that the lender agrees to, you will also agree to. Their money problems will sudden become your money problems if they miss a payment. There are a few things to take into consideration before you agree to sign your name to anything.
Cosigner Loan Considerations
The banks will require a reliable cosigner of the loan. Someone with good credit and has the credit history, monetary backing and developed trust. In most cases, the other person’s credit does not matter simply because they have you to vouch for all loan repayments. But realize that you will have to do your own homework on the applicant’s ability to pay back. Here are a few things to consider.
Are other friends or family members warning you about their bad history with money. If even family members or friends will not lend them any money, this is a warning signal you can not overlook. You will want to make sure you know the person on a personal basis. I would not sign for anyone that you just met.
If this is someone closer to you, it is alright to go deeper into the personal questions and really get to the heart of the reason of why they need a loan. You are not a bank and if they are unwillingly to calm your nerves with regards to this loan, you should be hesitant on lending them anything.
Questions for the Borrower
- Can the borrower cover the payments easily?
- How deeply invested are they with this loan?
- Do they have a written repayment plan for this loan?
- Do they have steady income?
- What do they need this loan for?
You will also want to take into account what will happen if this person cannot pay for this loan anymore. Who will be responsible for paying the loan? According to the bank if your name is on the loan papers also then it will fall into your hands if the main person decides not to pay the payments any longer.
You will want to consider what affect cosigning on a loan will have on your credit also. If you are looking to make a big purchase before this loan is paid off then it is not recommended that you cosign for anyone or get any type of loan at all for at least six months to a year prior to your big purchase.
It may be a good idea to have a legal document drawn up to protect yourself in case the other person you are cosigning for defaults on the loan. Depending on what state you are in this may not matter since your name is on the loan at the bank. Check up with an attorney on this matter in your area before you make your decision.
Cosigning on a loan is a big responsibility and should not be taken lightly. Weigh out all the options and make an informed decision before you sign your name to anything.
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