Many borrowers, be they cosigner or primary borrower (also known as the maker), don’t recognize the magnitude of the responsibilities borne by cosigning a loan. Even it is not delinquent, a cosigned loan is part of your credit history. Before making a decision whether to cosign a loan, consider the following advice offered by Experian, formerly TRW:
ü As a cosigner, you should know the purpose of the loan, the type of loan, the terms and why your friend or relative needs a cosigner.
– Understand your legal and financial obligations. Federal law requires financial institutions to tell you in writing that you are responsible for paying the debt if the primary borrower can’t or won’t make loan payments.
-Read and understand the credit contract. Be aware that a lender may be able to collect from you even when there is collateral. In the case of a car loan, for example, the lender might demand payment from you instead of repossessing the car. And even if the car is repossessed, its value may not be sufficient to pay off the loan.
-If the primary borrower defaults on the loan, then you as the cosigner may have to pay late fees or collections costs in additions to the loan amount.
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