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Cosigning Loans... Page 3
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Alternatives to Cosigning
1. Give a gift
At least if you make a gift, you won't be disappointed if the other person proves
irresponsible. Perhaps you can give a gift equal to a down payment that will allow the
borrower to qualify on his or her own. If it's a credit card for which you've been asked
to help out, recommend that the person get a secured credit card (a list is available on
the Debt Counselors of American website at www.GetOutOfDebt.org.) You can make a gift of
the deposit if you want to assist.
2. Help them help themselves
Tell the borrower you can't afford to have an additional loan on your credit report, and
suggest that he or she visit the Debt Counselors of America's website at GetOutOfDebt.org
for help with his or her credit problems. You know the old saying, "Give a person a
fish and they fish for a day, teach them to fish and they eat for a lifetime."
Collecting a Loan That Has Gone Sour
If you've already cosigned a loan and been burned, you may want to take the borrower to
small claims court to try to collect. In the meantime, if you want to keep your credit
intact, you may have to make payments yourself. Keep excellent records of everything that
is discussed and paid! You may need them.
If the account has already been turned over to a collection agency, you may be able to
settle for less than the full amount of the debt. If you do, keep in mind that you may owe
taxes on the amount that is forgiven. See the DCA brochure, "Beware of the IRS If You
Settle or Default On A Debt" for details.
A Word about Guarantors of Credit Cards
If a borrower has no credit history or has a bad credit rating, the borrower may have to
get a guarantor when he or she tries to get credit. Young adults who apply for their first
credit card may have to ask their parents to be a guarantor for the credit card. Likewise,
a person with a bad credit history who wishes to get credit and rebuild his or her credit
may have to present a friend or family member as a guarantor. Once again, it is important
for that guarantor to know what he or she is getting into.
A guarantor is similar to a cosigner in many ways. Like a cosigner, the reason a creditor
agrees to extend credit to the primary borrower is because the guarantor assumes full
responsibility for paying back a loan if the primary borrower defaults. Once again, like a
cosigner, the payment history of the guaranteed account will be reported on both the
primary borrower's and the guarantor's credit reports. If the primary debtor defaults on
the loan, the guarantor's credit rating will be adversely affected. The difference from a
cosigner is how that guaranteed account is reported on the guarantor's credit report. The
reporting agency should note in the guarantor's credit report that he or she is the
guarantor of the account, not the primary borrower.
Do you have a question about
credit or debt? Send it to: Debt Counselors of America Questions, P.O. Box 8587,
Gaithersburg, MD 20898-8587 or by e-mail to: questions@dca.org.
We cannot reply personally to each question, but you can find solutions to many problems
on our web site at www.GetOutOfDebt.org. © 1998, Debt
Counselors of America, Inc. All rights reserved.
Credit and Debt Calculators:
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• Should I pay off debt or
invest in savings?
• What will it take to pay off my balance?
• Should I consolidate my
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• How Much Am I Spending? |
