|
 |
|
Protect Credit
Cosigning Loans - Beware of the
Traps! |
You try to be helpful, so you cosign a
loan for a friend, or your child, or a co-worker. Of course they'll make the payments, you
say. You trust them. But can you really?
At Debt Counselors of America ® (www.GetOutOfDebt.org), we've heard from many, many
people who have generously cosigned credit cards or loans for others - and ended up
burned. So if we sound a little negative, don't be surprised. After all, we've heard it
all!
Still, you may be considering cosigning, so here's what you need to know to protect
yourself and your money.
Cosigning Cardinal Rule
Never cosign a loan if you can't afford to make all the payments yourself.
Let's face it: if someone asks you to cosign, it's because he or she can't qualify on his
or her own. The lender thinks it's too risky to let him borrow - so you can't afford to
take it lightly. The bottom line when you cosign is that you're agreeing to be legally
responsible for the entire loan. If the other person doesn't pay, you may be responsible
for making the loan payments as well as collection costs. Remember: this is a risky loan
you're considering, so be careful and think it through very thoroughly.
If you do cosign, ask for a written agreement from the borrower that he or she will be
responsible for all the payments and will reimburse you for any costs that arise from his
or her failure to keep up with the loan. If the worst does happen, you'll want that
documentation. If the borrower balks, don't cosign - after all, you're doing him a favor!
Although this "contract" between you and the borrower won't keep you from having
to make payments on the loan, you can use this contract to get the borrower to reimburse
you later.
Cosigning Trap #1:
Cosigning Can Ruin Your Credit Report
Under the Equal Credit Opportunity Act, if they report information to credit reporting
agencies, lenders must be fair and report information about both borrowers-the primary
borrower and the cosigner. Some lenders report positive and negative information about
accounts on a regular basis; others report only negative information about accounts.
Either way, if the bills aren't paid, the fact that the loan was paid late may be reported
to the credit reporting agencies and damage your credit rating.
MORE » |
