Things to consider before cosigning a loan

Many people who are having a trouble in getting credit will approach a friend or relative for cosigning a loan. Cosigning a loan is a great thing to do for a relative or a friend. But in some cases it may feel like the worst thing you have done ever. There are several points to remember before cosigning a loan, even if it is for you best friend.

In reality, cosigning a loan is just a matter of signing in a loan application, it is not that much. By cosigning a loan you are entering into a serious loan transaction. Whenever you have signed the loan statement, the complete responsibility of the loan is in your hands. If your friend or relative haven’t paid an installment back to the bank or financial institution, you are responsible for the payment. There you have to think twice before cosigning a loan.

Let us look a few points you have to take into consideration before cosigning a loan.

Your friend is probably a high credit risk

If someone is asking you for cosigning a loan, remember that the bank is not willing to take a risk on the person on their own. That is, the person has some bad credit performance and the lender is not sure whether the person will pay back the loan amount. So it is better from your part to make sure that the person will pay back the loan correctly if you cosign a loan for him.

Impact on your credit report

The next thing to consider is that what will the impact of cosigning a loan on your credit report. You have worked hard for many years to keep a good credit report. So after cosigning a loan if your friend didn’t make repayments correctly it will surely affect your credit report.

Your legal responsibility

Remember by cosigning a loan, you are ensuring the lender that if your friend make any failure in repayments you will pay the amounts. Think whether you have the money in your hand to cover the loan amounts?

After considering all these factor and you finally decide to cosign a loan for your friend you can follow some simple steps to safeguard yourself as much as possible:

You can request the lender to inform you in writing, if your friend fails or be late with a repayment. This helps you learn of any problems early on so that you somehow arrange money to cover the amount of repayment. As a cosigner you can also collect copies of all loan document and the repayment schedules. Keeping the copies of all the documents will help you if any dispute occurs.

Always remember cosigning a loan is a serious responsibility and is better to think twice before you sign. Even if you are going to cosign for you best friend, think about the responsibilities and the consequences before doing so. If you are cosigning a loan, it is better to be prepared so that you will not end up in a financial crisis. After all, money matters!