By: Mary Ellen Flynn, Esq.
Email: [email protected]
Banks, landlords, finance companies and other creditors often require potential borrowers to find someone suitable to be a co-signer of a loan before granting a loan of borrowed money or providing a lower interest rate. Examples of when a co-signer may be required include:
- Students applying for student loans,
- Young adults renting a residence or buying a car,
- Adults of any age who need a loan but don’t have a good credit history.
Co-signing a loan can result in very serious legal and financial consequences for you. Keep reading to learn more.
Legal & Financial Ramifications of Co-Signing a Loan
As a co-signer of a loan, you are as obligated for timely payments of the loan as the borrower. If loan or rent payments are late, the creditor can put the loan in default and seek payments from the co-signer and does not have to first pursue payments from the borrower. If you have a better income and/or more assets than the borrower, then it is likely that the creditor will first seek to enforce payments of the loan from you instead of the primary borrower. Further, the creditor may enforce payments by filing in court against you and obtaining garnishments on your wages and bank accounts and liens on your real property.
Loans for which you co-signed may appear on your credit report, affect your credit history, and prevent you from borrowing money for yourself. You want to be careful that you don’t co-sign for too many loans because those loans will be considered as part of your “debt to income ratio” and could result in you being denied a loan when you need one for yourself. Also, if the borrower is late with any of the loan payments, then the loan will adversely affect your credit history and lower your credit score.
What to Know Before Co-Signing
For the reasons mentioned above, before you co-sign for a loan you want to be aware of:
- The total amount being borrowed.
- When payments are due.
- Whether the borrower can afford these payments.
- Your short-term and long-term needs to borrow money for yourself.
Contact Andalman & Flynn for Advice on Co-Signing a Loan
If you would like advice on whether to co-sign a loan, don’t hesitate to call the lawyers at Andalman & Flynn and schedule a consultation with one of us. We are also experienced and effective in helping borrowers and co-signers work out agreements with creditors as well as defending borrowers and co-signers in Court.
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