Service and helping loved ones in need are certainly gestures filled with nobility. However, co-signing loan is to favor requires a great deal of discernment and vigilance.
The purpose of the co-signer
If a financial institution requires a co-signer from a borrower, it is because there is doubt about his ability to pay or because he does not meet the new qualification rules.
In the first case, a damaged or non-existent credit history may be the cause.
For cases of Inability to meet the new rules for qualifying for a mortgage, the addition of one or more co-signers Allows income to be added and debt to be reduced, Thereby Promoting demand for financing. See our qualification text for more information.
By becoming a co-signer, you become jointly and severally liable for the debt. By having the same obligations as the principal borrower, this greatly minimizes the risk for the lender.
Whether it’s for a family member or a friend, here are some things to consider before signing your application for funding.
In what other ways does my signature help the borrower?
With your addition to the financing request, you can avoid the borrower doing business with creditors with undesirable motivations and loan policies. We are mainly referring here to high interest rates and overly aggressive perception practices.
Financing can be a great way to get back on your feet, but under these circumstances it could be more detrimental to the borrower.
Before signing up, here are some tips that you could give the borrower to improve his credit report. If he is recovering from bankruptcy, this article could also help them.
Would I accept to modify my lifestyle if I have to assume the payments?
You have to be realistic and consider the possibility that this debt can become entirely yours. If you do not want to change your consumption habits in the event that you are forced to assume all of the monthly payments, it would be advisable not to affix your signature on the request. You can afford it, but do you want it to reduce the amount you spend on hobbies, travel or other similar expenses?
Can my credit report afford it?
The financing will appear on your credit file as soon as it is issued.
If you are thinking of applying for financing for yourself in the near future, make sure that adding additional debt to your file does not get in the way. Even if you have an agreement with the principal borrower that they are responsible for the payment, your credit report will indicate that you are also responsible for the payment.
Do I trust the borrower?
Often, the borrower who asks you to sign with him is in good faith. Here are some common examples:
- Young without credit history
- Self-employed who can not qualify
- In temporary job loss
- A person qualified with the old rules, but who can no longer transfer his loans for a better rate because he no longer qualifies with the new rules
- A person who would like to refinance for renovations, but who no longer qualifies with the new rules
A youthful error or an off-peak period may have contributed to a tainted credit history. Normally, you have a more intimate perspective than the financial institution on the situation of the borrower. If the person does not seem to have adjusted their budgetary habits, it would be better to say no.
However, in agreeing to sign, it is strongly advised to pay close attention to the regularity of the borrower’s payments. Ask the financial institution to send you the statements of account so que They can correct the situation the quickly the possible in the event of any problem.
For mortgages, one very important thing is to check whether the municipal and school tax accounts are paid. If this is not the case, the city or the school board can raise a legal mortgage on the property and seize the house. The co-borrower will therefore be left with debt and no assets.
The bond of trust that characterizes your relationship with the borrower can change over time. Too often, family members, former friends and ex-spouses receive the call from collection agents for loans they had completely forgotten.
- A co-signer allows an individual to obtain financing that he would not otherwise have had.
- The co-signer has the same responsibilities for paying down the debt as the borrower.
- When co-signing a loan, you must be vigilant and keep an eye on the statement of account.