Credello: Here's Why, According to Experts, You Should Think Twice Before Co-Signing a Loan
NEW YORK, August 11, 2022 (Newswire.com) - Maybe you know what it means to co-sign a loan. Perhaps you're unfamiliar with the concept. If you know what co-signing means, you might sometimes think it's appropriate to do that for a family member or friend.
However, before you start looking into the best personal loans with co-signers, you should think about the risks that go along with this course of action. We'll talk about those right now.
What Does Co-Signing Mean?
If you co-sign for a loan, along with someone else, you have a binding legal obligation to repay that loan in full.
As a co-signer, you agree to pay back the loan's entire amount if the person with whom you co-signed cannot do it. If they miss any payments, the lending entity will immediately turn to you and expect you to cover the money they are due.
Now, let's go over why you might think twice before becoming a loan's co-signer.
1. You're Legally Liable for Missed Payments
We already mentioned the first and most crucial reason why co-signing for a loan can backfire. If the individual you co-signed the loan with can't cover the agreed-upon monthly payments for any reason, you'll have to come up with that money yourself.
If you don't have ready funds to cover those payments, this situation can throw your life into turmoil. In the worst circumstances, you might have to move out of your house, sell your car, or do whatever else is necessary to produce the money.
2. You Can Ruin Your Credit History
You also risk a plummeting credit score if you co-sign for a loan and the other individual who took out the loan can't make the payments. If you have the cash to cover those payments, your credit score will not be harmed. If you don't have the money, though, your score can take a significant hit.
3. You Risk Debt Collector Harassment
If you co-sign for a loan, and the person with whom you got it can't make the payments, the lending entity will turn to you for that money. If you can't pay it promptly, they can turn the matter over to debt collectors.
You probably won't like the experience of having debt collectors calling and emailing you incessantly until you can get the lending entity their money. The lender can even step up the legal action by suing you and garnishing your wages if you take too long to rectify the situation.
Consider Before Co-Signing for a Loan
Certain situations might arise when you'll want to co-sign a loan, most likely for a family member or close friend. Think carefully before you do, though.
If the individual you co-signed the loan with can't make the payments, you might get harassed by debt collectors until you produce that cash and give it to the lending entity. If you can't get the lender that money quickly, that will negatively impact your credit score as well.
You'll also have to undertake the responsibility of paying the lending entity whatever amount of money the other co-signer doesn't have. Doing so can make your life difficult if you must dip into your savings, if you're on a fixed income, or in similar situations.
Before you co-sign for a loan, make sure you trust the person with whom you're co-signing. Understand that you're on the hook for any missed payments if their fortunes change.