Many of us try to be helpful when a friend or relative wants us to cosign a loan for him/her. But before you sign in the loan document you must understand the pros and cons of being a cosigner.

Things that you’re putting at stake as cosigner

• Your friend would try to convince you that he would make regular payments towards the loan and the responsibility of repaying it would never fall on you but we all know that things change very quickly. As the cosigner you will become responsible for repaying the entire amount when the borrower defaults.
• Being a cosigner involves great risks. The lenders would come after you if the borrower doesn’t make payments on time. They would try to get hold of you first even before pursuing the defaulted borrower.
• Most likely you would be harassed by the creditor and collection agency for payment.
• The defaulted loan would appear on your credit report and likely to make a dent in it. This negative information on your report may also disqualify you from getting a loan in the future.
• In most of the states consigners can be sued by the creditors and depending upon the state laws can also have their wages garnished. At the same time you would also be responsible for all the late charges and attorney fees on the account.
• The creditor can also put a lien on your property/assets to collect the debt and can seize the property which has been used as collateral.

Things to consider before cosigning a loan

You first need to determine who needs a cosigner. Of course a person who has been denied a loan when he tried to get one by himself. This is also true for people with poor credit. Therefore, chances are high that they may default on the loan. According to a survey conducted by FTC, borrowers default on three out of every four cosigned loans leaving the cosigner responsible to make the future payments on it.

Hence, when you cosign for a loan check the following,

• Is the person trustworthy?
• Can this person afford the loan?
• Can you afford the loan?
• How long and how well do you know the borrower?
• Would he come to your rescue at the time of need?
• Is the borrower disclosing all information regarding security issues?
• Do you understand the terms and conditions and the consequences respectively for cosigning the loan?

However, if in spite of all odds you need to cosign a loan, learn your rights as a cosigner. Ask the lender to inform you whenever the borrower misses payments. Also make sure that you receive all the important documents regarding the loan.