The Facts behind Cosigning Loans: If It Defaults, You Are Responsible.

You may have been approached in the past by a friend or a relation who wanted you to cosign a loan. What they are asked you to do is to guarantee that if they don’t pay back the debt you will. You have to really think carefully about this because if he defaults on the loan then you will have to take responsibility and do you really have enough financial status to do so? This means that you not only have to pay the full amount of the loan, but you have to pay all the late fees and collection cost that appeared on the loan when your friend or relative did not pay.

Unfortunately the bank or lender will try to collect the debt from you first before collecting from the borrower. They will even use the same methods of collections that they would use on your friend who took out the loan. Because your friend or relative did not pay the debt back your wages could be garnished and your credit history could be damaged. Research has shown that there is a higher percentage of debts paid back by the cosigner than by the original borrowers themselves. This percentage is around 75%. You have to think about what is going down. If the bank does not trust this person because of their credit past or credit history, then why should you?

In many states the law demands that the bank can come to you to collect payment the first time your friend or relative misses the payment. Not only will you have to pay back the entire debt, but you will also have to pay back any interest, fees, and lay charges. If the lender goes to court, you will also be liable for attorney’s fees and any lawsuits that the judge may award for bank. Your property, even though it was not put in as collateral for the loan, can be taken by the court and this includes your car, your house, and any other personal possessions you have of worth.

Some circumstances may warrant that you need to cosign a loan for a friend or relative. Make sure that you have enough money to pay back the loan and any other fees associated with it. Before you put down any personal property as collateral, make sure that you know you may lose that property. It might be prudent to ask the lender to calculate how much money you would owe if the friend or relative defaulted on the loan. You may have a clause put into the loan contract that will state that you will pay for the loan and not be responsible for any fees that are incurred. You may also want to put in a clause in the contract that states that if the borrower does default on the loan that you will have time to readjust your finances to pay the loan back. Without these safeguards put in to place you may be setting yourself up for a financial loss, losing property, and bad credit.