Important Things to Keep In Mind When Co-Signing

Things to keep in mind when you do cosign on a loan

Although it is never really recommended, there are situations and circumstances in which you may want to cosign alone application. The commonest situation is parents wanting to help out a child get their first loan or even helping out a close friend when he needs help.

Consider the following points before you cosign:

  1. Ensure that you can afford to pay the loan in case the primary borrower cannot or does not in the future. Failing to do so could mean that you get sued in a court of law, your property or wages are used to pay off the loan as well as your credit rating and taking a dent.
  2. You should understand that even though you may not be asked to repay the debt, the debt will show as an additional liability on your credit file. If the debt is large enough, it may hinder your chances of qualifying for credit on your own because the future creditors will consider the cosigned
  3. Be careful when you pledge your property to secure a cosigned loan such as a tangible assets like your automobile. If the borrower defaults and you do not pay back the debt, you could use these items.
  4. You can consider asking the lender to give you specific and different terms than the primary borrower. For example, you might ask to borrow to limit your liability to the principal on the loan and not include any late charges, court fees, attorney fees or interest charges. If the lender agrees to such an agreement, have him put it down in written in the contract. You can also ask the lender to calculate the amount of money that you might owe in the future if the primary borrower defaults. The lender is not required to do so as per the law but he may if you asked.
  5. You should put in a clause in the contract that says that you are to be notified immediately when the borrower misses a payment. This could give you the opportunity to deal with the problem quickly in the future. Many cosigners are notified when the debt has gone unpaid for a long amount of time and the amount to be repaid has increased substantially.
  6. Make sure that you get the copies of all important documents such as the loan contract, the truth in lending disclosure statement and any warranties when you are cosigning for a purchase. You may need these documents if there is a dispute between the borrower and the seller. The lender is not required to give you these papers as per the law and you may need to get them directly from the primary borrower.
  7. Different state laws may have slightly different provisions for the rights of a cosigner. Check your state law for these updates.

In the end, remember that in case you need help when you have cosigned on a loan, you can go to the Federal Trade Commission. The Federal Trade Commission works to prevent fraudulent, deceptive and unfair business practices in the marketplace as to provide information to help the consumer spot, stop and avoid them. To file a complaint or to get free information on consumer issues, visit or call on 1-866-653-4261.

The Federal Trade Commission helps and fights unfair business practices and helps to resolve consumer issues by entering Internet, telemarketing, identity theft and other fraud related complaints into consumer Sentinel which is a secure online database available to hundreds of civil and criminal law enforcement agencies in the US as well as abroad.

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