Co-signing for a Family Member

Co-signing for a personal loan is a risky venture to say the least. If you are a friend or a family member of someone who is required to have a co-signer in order to obtain a loan, you should only do so with much caution. The co-signer many time is unaware of their compete role in the matter. Many do not understand that if the borrower defaults on the loan, the co-signer is then responsible to pay the debt. It is suggested that anyone who is considering co-signing for a loan educate themselves before doing so.

Not only is the co-signer responsible for the loan if the borrower defaults, they will also stand to have a negative mark on their own credit which is dependant on what the borrower does in regard to the loan. When you are a co-signer your credit report will show as you being a co-signer which may affect your debt to income ratio. This is a formula which is used when you make application for a new home or other purchases which will help decide whether or not you will be granted financing. If it appears that you owe out too much to be a good risk, you will more than likely be turned down. In addition your debt to income ratio can also affect the interest rate you will be offered.

If you still wish to co-sign for someone, talk with the financial officer first to see if they will allow the loan to be put in the borrower's name alone after a set period of time. This could be a few months or a year or two. In this way, you may be able to protect your credit rating by not having a debt which extends for great periods of time, and you may well be able to arrange to be allowed access to the account to make sure payments are being made as scheduled. It is not unusual for many co-signers not to be aware of the status of a loan which they have co-signed for until the loan is in default. By this time, the co-signer's credit has already been damaged.