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Cosigning a loan - things to consider before cosigning

Sun Sep 7, 2008 11:09PM | By Tony

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With the tough economic times come late payments and credit delinquencies. Over the last 2 years the number of potential borrowers with rather battered credit scores has been on the rise. In the same time, lenders don't simply want even higher scores than just few months ago, but they also scrutinize credit history of loan seekers looking for early signs of would be trouble. So the number of cosigning request is probably all time high. Cosigning a loan happens when a consumer with good credit agrees to be liable for the debt of another consumer with no or bad credit. Before you cosign for a loan, think very carefully

As we wrote long time before when the very topic of cosigning wasn't much of a big deal, your life can be severely affected and disrupted when the borrower on whose loan you kindly cosigned, decides that he or she doesn't feel like paying, leaving it up to you to make good on the promissory note. Happens everyday to hundreds of folks, and did happen to me some 17 years ago. The sad truth you have to realize is after cosigning a loan, you can't get out from the obligation to repay without the permission of the lender, which you will never get. Why would a lender let a cosigner off the hook after the borrower defaults. The whole idea having someone to cosign on a loan was the very possibility of default by the borrower. So what are the things to consider when cosigning? I personally would only cosign for someone from immediate family and few close friends. Never should you cosign for someone who is a nice guy or a wonderful gal, and you know them because your children go to the same daycare, or you play poker together twice a month or even once a week. Things like these happen everyday. Of course there are cases when a very responsible and honest borrower loses a job or gets sick. After cosigning a loan, you can't avoid that risk. But you have to minimize it by staying away from those whom you don't know as well as those not responsible ones you do know.

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