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Signing-Document

Why You Should Never Rely On A Cosigner

By: kjmena


Having a cosigner for any of your loans can be a very delicate situation. Especially because a cosigner is the act of signing for another person’s debt which will hold the cosigner legally obligated to pay off that debt if the other person defaults.

So basically a cosigner is a second person that will be held legally accountable for your debts and can be pursued for your debts if and when you do default. Cosigning is used when a person of low income or poor/limited credit history needs financing of some sort.

A cosigner can benefit a person with little to poor credit history but can also be a stressful situation, as they will be relying on you to keep your half of the loan agreement. For this reason and other it isn’t always best to have a cosigner.

 

A Cosigner is usually a close friend or family member

Most people who do act as a cosigner, they do it for their children, friends or close family members since the contract is binding and will impact both people equally.  As a result, this can create a strain on that relationship as the cosigner will feel the burden of your debt if at any time you are not able to pay it off.

This can create a rift in a typically strong relationship and cause you more stress in your personal life. Your cosigner will be just as diligent as you, if not more, in making sure that you don’t default on your debt.

 

A Cosigner’s credit could be impacted negatively

As a cosigner, that person will also incur any consequences of you failing to repay your debt, including taking a significant hit in their credit. When you default on your loan, it will show up on their credit report and hinder their credit score.

Whether you intended to default or not, this will happen and be a blemish on their record. As a result, they may get denied for future credit cards or lines of credit.

 

If you default they would have to pay the debt

If you do fail to pay, it will be your cosigners responsibility to pay off the debt. The creditor that let you the money will be forced to come after your cosigner due to the terms of the loan agreement.

In fact, a creditor might even place a judgment against your cosigner in order to recuperate their money. This could be in the form of a wage garnishment, lien or levy.

 

Ways To Get Around Having A Cosigner

Sometimes you can actually get around needing a cosigner in certain situation but it takes a little negotiating or bargaining with people. However, this will not work in situations in which you are trying to secure a loan. Going without a cosigner will only work when you are trying to get an apartment or a car.

 

Put down a bigger down payment

One of the more common and more popular ways to secure financial backing without a cosigner is to put down a bigger down payment. For instance, when you are looking to rent or own an apartment you will need a cosigner if you don’t have good credit. However, in some instances your landlord will allow you to go without a cosigner if you pay a couple of months upfront.

This is because having a cosigner is a form of security for your landlord to ensure monthly rent payment. However, if you are able to pay a couple of months ahead of time including your security deposit, that will give them more confidence in you as a tenant.

 

Take Out Unsecured Loans

There are some loans you can take out in which you don’t need a cosigner and will be able to sign alone. However, these loans usually come with high interest rates and very strict terms and conditions.

When looking for an unsecured loan, make sure to do your research first. There are many scammers out there and it is very easy to get trapped in a loan agreement in which you will owe a significant amount in the future.

 

Use Payday Loans

This is also a way to secure loans without the need of a cosigner, but as mentioned earlier, these loans come with very specific conditions and with high interest rates.

In addition, you will have to pay them off quickly, within a matter of weeks sometimes depending on the creditor. Shop around before making a final decision and make sure to read your contract, including the fine print, before signing it. You don’t want to enter into a loan agreement before knowing your financial responsibilities.

If You Do Use A Cosigner

If you do choose to go ahead with a loan in which you will need a cosigner, you should make sure of a couple of things.

 

  1. That it is someone you trust and know well and vice versa. You don’t want your cosigner to be constantly doubting your ability to pay off your debt.
  2. That they are aware of the legal implications of being a cosigner. You should both have read and understood the contract before signing it.
  3. This person communicates well. You want someone that you can call if you might default or are having trouble paying off your loan, so that you both can work on a good solution.

 

Having a cosigner is not a bad option when it comes to securing financial backing and is actually a great way to help improve your credit. However, the decision should not be taken lightly and you should be very selective in choosing a cosigner.

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