Have you ever been approached by a family member or a close friend co-sign for their loan?
If you are considering doing someone a favor, you should arm yourself with this guide to avoid the worst-case scenario. Read to find who to cosign for a loan and what’s in it for you.
If someone’s credit score is below the threshold and you are obligated to help, it’s best that you fully understand your duties and responsibilities as a co-signer. For example, a business owner who lacks an established credit history wants to borrow money to pay for a car, house, or raise funds for another investment, the creditor will require their lender to find someone to guarantee their loan. The person is known as a “co-signatory” and is obliged to assume the remaining amount of the loan if the debtor is unable to fulfill the payments.
So, Should You Sign or Not?
We can’t dictate your decision, of course, but if we were being honest, the answer would be no. When you agree to a joint loan, you should ensure that your wallet has enough room for the extra burden. On the other hand, you can find yourself with a bigger range of credit accounts and the extra debt can affect your credit rating negatively, even if the borrower pays off the loan on time.
Take Note of These Precautions
Before agreeing to cosign a loan, be sure that you have plenty of room to accommodate added responsibilities. Only cosign for a family who’s been proven trustworthy in the past. You should also build up a stock of emergency savings to ensure that you pay off the remaining debt. You may wish to enter into a written agreement with your co-signatory to ensure that he or she will reimburse the costs associated with his or her default.
Thinking of cosigning a loan? You could be putting your credit score at a huge risk. We’re here to help, give us a call 800-282-8497. For more information, visit CreditGUARD of America at https://www.creditguard.org