You are in urgent need of a loan, but due to a bad credit history or no credit history at all, the loan granter requires you to get a cosigner for the agreement, before approving the amount. What does a cosigner mean?
In general terms, a cosigner is a person who takes equal responsibility of the loan payment as the primary borrower. Suppose a friend or relative of yours needs a loan for any purpose such as buying a house or a car, or getting a student loan, the loan company whom he approaches would normally require another person to be responsible to make sure the primary borrower repays the loan at the prescribed intervals. The person who takes this responsibility is known as a cosigner.
If you become a cosigner for a person, in case he fails to repay the amount back to the bank or the granter; you will be responsible for repaying the money. If the borrower is disabled or dies, leaving behind the business loan, auto loan, or home loan to be paid; you will have to pay the remaining amount. So, even though you do not possess the property or thing that was purchased on loan by the borrower, you still have to make the payments. Along with the loan; you will also have to pay the late fees, interest, collection charges, or any other miscellaneous charges involved.
What are Loan Cosigner Responsibilities?
Cosigning for another person is totally an act of great responsibility and risk. Therefore, it is very important that you keep some considerations in mind before entering into such an agreement. Make sure that the borrower, who may be any of your friend or close relative, has the required means of paying the loan back to the funding entity. It is not a good idea to enter into a cosigning agreement without assessing the borrower’s ways of payment.
One important thing to consider is that if the borrower is unable to repay the loan; it would not only have an adverse effect on the credit records of the borrower, but also will affect the credit ratings of the cosigner. And if this becomes the case, then the cosigner may face difficulties in the future regarding obtaining loans.
As a cosigner, you should also make sure that there is no collateral that is set as a security with the granter. Keep away from using property or fixed assets as a security. This might run the risk of ruining your future. If you are a cosigner, you should keep in touch with the granter at regular intervals. By doing so, you will ensure that the borrower is making timely payments.
Make a file to store all the loan related documents. Remember that you are also a part of the deal, and it is always better to record all details with you. It is recommended to even keep the least important document for further reference.
These are few important responsibilities that are to be considered before becoming a guarantor for someone. After you enter into a cosigning agreement, the debt details will reflect on your credit report too. If we take a look at the positive aspects of cosigning, if done with a trusted borrower; this can be of a great help for the borrower to secure any kind of loan for his needs.