Don't Get Roped Into Co-signing A Loan You Can't Back Up
It's fairly common knowledge that you have to be careful and discriminating when applying for a loan, and you shouldn't take out money you aren't sure you can pay back later. The potential hazards of an insurmountable loan are every bit as serious when you are merely co-signing for someone else's loan, but you may not be keeping them at the forefront of you thoughts in the latter situation.
When you co-sign on a loan for somebody you know - a family member or close friend, for example - you are effectively bolstering that person's guarantee of repayment, adding to his own credibility through your endorsement. Additionally, you're committing to the responsibility of paying back the loan if that person cannot, for some reason.
Generally, a co-signer is required by someone voicing or implying skepticism regarding a loan applicant's likelihood of repayment. This is not always the case - for example, a college student applying to rent an apartment will often need a co-signer, since realtors may assume, often correctly, that young adults don't have sufficient credit to back up a loan application and desire that extra measure of diligence as a result.
If the above example doesn't apply to your situation, and a lender is simply dubious of your acquaintance's viability as a lendee, you might do well to be skeptical yourself. After all, nearly all co-signer agreements commit you to repay the debt if the lendee can't, in addition to any late fees that apply.
In some U.S. states, the lender can solicit payment from you before going to the borrower, subjecting you to all applicable collection tactics.
If you're a generous person and you're looking to help out someone close to you, your willingness to co-sign a loan for them is understandable and commendable. Just be careful of what you are involving yourself in, if you have any doubts.
Have you ever co-signed a loan, or needed someone to co-sign for you?
