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The Dangers of Cosigning a Loan
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Many parents find themselves
in a dilemma when their children come to them and
ask them
to cosign a loan. It may be
a family member or friend, but when
considering cosigning, it’s best to protect yourself
first and foremost.
If someone is
asking you to cosign for real estate, you may want to
consider asking to be part owner of the property.
That way, if the person develops another bad streak of
luck, you’ll have a say in your financial
future.
Often the problem
with cosigning a loan is that the cosigner doesn’t know
there’s a problem until the primary applicant defaults
on the loan. You don’t your credit history
tarnished due to non-payments or late payments made by
someone else.
Additionally,
aside from the fact that your credit is at risk, you may
also find it harder to qualify for a loan yourself –
even if your friend has made all her payments on
time.
The reason for
this is because it may appear as if you have
over-extended yourself. Lenders see that you are
responsible for the loan. So if you’ve co-signed
for $20,000, that’s $20,000 less you can borrow on your
own name.
Be extra careful
when cosigning for a credit card. Credit card
companies periodically review the debt and if payments
have been made on time, they will increase the amount of
available credit. So if you cosigned for a $1,000
credit card initially, you may be responsible for a
$5,000 debt later on.
It’s hard to say
no to loved ones who come to you for help. But
your financial future is at stake, and you have to make
sure you’re able to maintain your good standing for your
own future before you help others.
Be aware that
lenders are not required to contact you when payments
start falling behind. If you’ve guaranteed your
cosigned loan with collateral, you may lose it before
you even know what’s happening.
Information contained herein is deemed accurate and correct, but
no warranty is implied or given. Please consult
a financial advisor for specific advice pertaining to
your particular situation. © 2004 Apex Personal
Loans Store. All Rights Reserved.
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