Co-signing a Loan: Understand the Risks
Co-signing on a loan involves a lot more than just your signature. When you co-sign a loan you put your credit history and personal assets on the line. Though it may be difficult to say no to a friend or family member it is important to make sure you fully understand the risk you are taking before you co-sign a loan. Your LegalShield provider law firm can review the terms of the loan before you sign. 1. You are responsible for paying back the loan. Consider that any number of emergency situations could cause the borrower to miss or stop making payments altogether. If the primary borrower cannot pay the loan, you will be responsible. Make sure you are prepared to pay off the loan before you co-sign. 2. Know the laws where you live. Some laws allow the lender to collect from the co-signer if the primary borrower misses a single payment. In some instances the lender may be able to go after you even if the primary borrower dies. Before you sign make sure you know the law where you live. Call your LegalShield provider law firm to learn more. 3. Review the terms of the loan carefully before you sign. Read the loan documents. Make sure you know the interest rate, duration and terms of the loan. Retain copies of all of the loan documents and copies of checks used to make payment on the loan. Have your LegalShield provider law firm review any loan terms before you sign. 4. Do not be afraid to negotiate with the lender. As a co-borrower you may be able to negotiate the terms of the loan including the interest rate, potential late fees and payment dates. Require the lender to notify you if a single payment is missed so you can address problems quickly. 5. Failure to pay the loan will damage your credit. In many cases co-borrowers are required because the primary borrower has poor credit. While timely payments on the loan will improve the primary borrower’s credit score, consider how late payments will hurt your rating. A drop in your credit score could prevent you from getting other types of credit or increase the interest rates you receive from lenders. 6. If the primary borrower defaults on the loan be proactive. If you receive a notice to make payment on a loan you co-signed do not wait to contact the lender. You may be able to negotiate a settlement directly with the lender. If the lender is forced to take legal action you may end up on the hook for court costs, late charges and attorney fees. If you need assistance call your LegalShield provider law firm.