There are different financial situations when you may be asked to become a co-signer for a loan. For example, here are some of them:
- An 19-year-old student wants to get a credit card, but has no appropriate level of income and no credit history at all. In such case her parents are becoming co-signers in order to help their daughter to begin financial life and gain necessary money habits.
- A young man has his car broken, moreover his finance is not in a good shape too. So he asks his father to co-sign a loan for him to get a new car.
- A women is self-employed and has not a great credit score. Her partner has a full-time job and is asked to be a co-signer for a loan for house improvements.
Becoming a co-signer in such situations when you want to help your children, friends or even relatives, can seem a great idea and a proof of your good attitude. But before making such financial step you should consider all possible consequences and even recommend your friend to use best instant loan sites to avoid such monetary dependence. Learn the next points of being a co-signer to make your solution more reasonable.
You Are Becoming a Borrower
When you co-sign a loan, for the bank it means that you actually become a borrower as well as your friend, the main borrower. This loan will also appear on your credit report, so, if a main borrower has some problems with repayments, you will feel this impact.
Problems with Further Loans
In case you want to get another loan in the near future, the obligations of co-signing may have bad influence on your own possibilities. You may get higher interest rate or your application can even be denied.
Co-Signers Make Repayments
Unfortunately, the statistic shows that more than in 70% of default lending, the co-signers become the ones who return money to lenders. In case of any problems with repayment terms you will be asked for making payments, because a main borrower has no financial basis to support the loan. So you are not just a guaranty nominally, but in case of any problems you will solve them.
If a main borrower fails to make payments, you will have not just to return the body of the loan, but also cover all surrounding charges that may occur. In the worst situation, this unpaid debt can go into collections, and according to the court’s decision the creditors can put a lien on your real estate. Do not forget that your credit score is also damaged a lot.
Make a Thoughtful Decision
The desire to help your child start financial life and decision to become a co-signer can be really good, if you can borrow a small amount that you can easily cover and set low interest rate to make it possible for your child to pay it. In such case you should explain to your be-loved one all the consequences of lending money and teach your child how to deal with money. However, if your friend have financial problems, you should better advice him or her to look for possible ways to solve this situation without a co-signer.
Anyway becoming a co-signer is a high responsibility that may impact your credit score and financial position at all, so you should take such solution thoughtful and with clear understanding of your own involvement.