Being A Co-signer

Choosing to be a co-signer for a friend or family member when they are trying for a personal loan, is a very generous thing, as it may be the determining factor as to whether they are approved for the loan or not. However, making the decision to be a co-signer is not one to make lightly. It is the co-signers responsibility to research what this will involve and what their responsibility should be if the loan borrower defaults on repayments.

One factor of becoming a co-signer that most potential co-signers dont realise is that this loan is going to show up on their credit report. And anyone looking to do this must also bear in mind that they may not be approved for a loan for themselves as this loan they co-signed on will be used in the calculation of debt to income ratio. It may also affect the interest rate on any future loans you may apply for. If after knowing the above information you still wish to be a co-signer for a friend or family member then maybe you should think about coming to an arrangement with them, like after a certain amount of the loan has been repaid, the borrower could try to redo the loan under their own name only. Because the more money you co-sign for, obviously the longer you will be tied to it

Because the loan can affect the co-signer, either positively or negatively, it is important that the co-signer insists the loan be set up so that they can access the account information, so they are able to keep a track on what has been paid and what is still outstanding on the loan. Another important thing a co-signer must do is ask that the lender will inform them of any late payments or non-payments that may occur as soon as they happen. Many times a co-signer is blissfully unaware of what is going on with the loan, or that there have been any issues regarding repayments until it has already had an impact on their credit.

Although being a co-signer on a friend or family members loan may indeed help them, you must take into consideration what it could do to your credit, but not only that, what affect it may have on your relationship with that person. Nothing can sour a relationship faster than money issues.

You must look at what led the borrower to need a co-signer in the first place. It is understandable if their credit problems were due to circumstances out of their control, if this is the case you may want to consider helping them out. If however it was down to money mismanagement, then it may not be such a good idea, as you wont be doing them or yourself any favours.

Be warned, when people hear you have become a co-signer for someone, others will no doubt expect or hope you will help them too. It really isnt a good idea to become a co-signer for anyone else, it just puts your financial situation and credit score at risk.

If you feel your credit and financial circumstances could stand up for for the payments if the borrower fails to make payments, then do not act as their co-signer, you will not be helping them, and will also be putting yourself into a big problem at a later date should the borrower not be able to make payments. It can be hard to say no, but you really must if you are not 100% sure you can afford to pay on their behalf should anything go wrong which may lead to the borrower not being able to make payments or if you cannot afford to have your credit score affected by this loan.

Its worth considering having the borrower provide you with verification that payments are being made including regular statements or cancelled checks. To reduce your risk further as a co-signer insist that if you are to be co-signer the borrower must purchase personal loan insurance that can cover loan payments for a particular amount of time due to unemployment, illness, or death so should any of these unforeseeable circumstances take place, you do not have to compensate.

Co-signing for somebodys loan is much more than just signing on a dotted line. You are putting your financial history and all of what it is worth on the line for this person, so it is vital that you evaluate the persons need for the loan, and their spending habits. If they are the type of person who makes a habit of borrowing money or continually lives beyond their means, then walk away, it is not worth risking your financial future or friendship over their financial capability or lack of.

There are times when being a co-signer on a personal loan is the right move to make, but only you can asses yours and the borrowers financial situation and only you can make that decision. And remember if you decide to go forward with it make sure you can afford the cost of any missed payments and that the lender is going to keep you informed on the payment status on the personal loan.