Have you ever heard about “co-signing?” Despite its popularity in the US, lots of people don’t really understand what it is. After being convinced by their close relatives or buddies, they quickly agree to become a co-signer of a loan installment.
Hold on – don’t act rashly!
Xolodan/Shutterstock: Careful consideration of the possible consequences is a must
Co-signing is one of the methods to obtain a credit, especially when the primary borrower doesn’t meet the qualification. Here, the second signer acts as a guarantor for the loaner. It seems promising at first, yet this scheme can lead you to some significant drawbacks, which will inflict a financial loss.
These are four major reasons why you should avoid the co-signing agreement.
Their Loan Becomes Your Responsibility
fizkes/Shutterstock: Guarantor’s responsibility
Even though you recognize the primary borrower very well, there are always possibilities that he will fail to pay the debenture and run from it. It means that the next person whom the lender will seek is you, the guarantor!
Co-Signing Can Disturb Your Money Flow
Stable money flow is what the citizens are looking for, yet with a simple signature on a piece of paper, you can ruin it all! The money that usually goes directly into your bank account will vanish. Moreover, if you also take the housing credit or car installment, things only become worse.
You Can Be Prosecuted Legally
Jacob_09/Shutterstock: Legal risks involved
Remember – the law protects the agreement letter, and you can get sued if the primary loan signer neglects his responsibility. As most of the creditor agencies are registered private companies, they may bring all of the “late payment” cases to the court.
You are going to be in a disadvantaged position, in case the debt collector reports the first borrower. The worst scenario that may happen is: you need to pay all of your “friend’s” debt, plus the interest, and (maybe) additional fine!
Sudden Contact Loss with Relatives Is Possible
A bunch of cash can break friendships, you know. It is pretty wild to imagine, but when your loan partner exploits your trust and walks-off from his debt, you probably will get mad at him. What will happen next? We bet that both of you won’t even talk, let alone have a casual outing.
See?There are many risks of becoming a second loan signatory. You’ve read about all the drawbacks, are you still willing to sign an agreement as a second party in a loan letter? We hopeyou throw that thought as far away as possible.
