Anyone from your family and friends may ask you to be their co-signer for an auto loan just because they have poor credit rating or lack credit history. If it happens to you ever and you choose to help them then you should be aware of certain things about becoming a cosigner.
Important things about co-signing a loan
There are certain things that you should take into consideration before co-signing a car loan, student loan or home loan. You should be prepared for any unexpected situation that might pop up anytime in front you.
Starting from what is expected from a co-signer, being a co-signer you should be aware of the fact that you are about to take the responsibility of the loan for which you are presenting yourself as a co-signer. In that case, if the actual borrow fails to repay the loan then loan repayment will be your responsibility. Lenders have got the legal right to ask cosigner for the repayment of loan anytime when the actual borrower becomes default.
Expectations from a co-signer
There are many other significant responsibilities of a cosigner and these are:
A cosigner has to pay any type of late charges, legal fees and penalties that are applied on the default. In that case the lender or lending institutions could take following possible actions:
- They may can sue you in court and get the court favor against you
- They can make you unveil your assets
- In serious cases, they can also set your property for foreclosure to get the loan repaid
How your credit can be affected?
When the debtor fails to repay the loan or becomes default, creditor informs this to credit bureaus, thus leading to harm your credit history and credit rating. Lenders can exploit this particular information against you to increase the interest rates on your credit.
It will also be a bad mark on your credit history and will limit your borrowing ability, as future lenders will consider that unpaid loan to decide how much amount of money they want to lend you.
Bearing all these risks in mind, you should try to be a cosigner only if you have enough assets to pay off the debt in case the actual debtor becomes default. You should keep yourself away from being a cosigner if you don’t own enough finances. Moreover, you should not offer your cosigning ability to anyone who is not reliable, able to repay loan and responsible.
Controlling the damage on becoming default
There are certain things which you can use to troubleshoot the damage that might happen in case you or actual debtor becomes default. First of all, your lending institution holds the right to take the possession of your assets to recover their amount which they have lent to you. They can sell your property in auction and bother you to get the full amount of loan.
Repaying the loan
You should sell any item that you think can generate enough amounts for repayment. That is better than to have a black spot on your credit history. You may also try negotiating with the lenders if the lenders are a credit card company. You can convince them to pay off low repayment amount of loan without leaving black mark on your credit history. It is always a better practice to set important things with primary debtor that you are just cosigning the loan for their help and in case they become default then you will not be responsible to repay the loan. Make sure to have a legal promising paper signed from them for the amount of loan you have paid off for their loan.
Hiring a legal attorney
It is always a better and wise choice to hire a legal attorney while considering cosigning a loan with your family or friends. Lawyer will help you to draw a legal contract highlighting obligations of each cosigner for their ability of repayment. This contract should also contain details about the failure of any cosigner to repay the loan. Having this kind of contract doesn’t mean that you are getting relieved but it will help you to maintain a good relationship with your cosigner.