What to Know Before Co-signing A Loan?

Young consumers with no established credit will often ask their parents to co-sign a loan to help them with their education or to get their credit established. Most parents could never imagine that their child might default on the loan and give it no second thought. Before you decide to sign a loan for a child or anyone else, here are some things you need to know.

You Are Responsible 

When you sign for a student loan, line of credit or any loan for a third party, you are legally responsible if that person fails to meet the terms of that credit agreement. If the other party misses payments, the creditor will expect you to make the payments and/or demand that you pay out the account in full.

Counts Against Your Credit 

The co-signed account will be posted on your credit report, and the repayment history, good or bad, will be reflected and can impact your credit score.

May Affect Your Ability To Obtain New Credit 

When you apply for credit, the lender will review your credit report and your credit score to help them decide whether or not to grant you credit. Your credit utilization impacts your credit score. Your credit utilization is the total of all your credit card and line of credit balances compared to your total credit limits. A high credit utilization will lower your credit score while a low rate helps maintain a healthy credit score.

Can Strain Relationships 

If you co-sign a loan for a friend or family member and that person defaults on payments, it can strain or even ruin that relationship. Hence the saying “Before borrowing money from a friend, decide which you need more, the friend or the money?”

Ultimately the decision is up to you, but you need to consider the above factors before making that decision. If you are comfortable that the other person is responsible and will take the obligation seriously, then go ahead and sign. If you have any hesitation or misgivings, then it would be best to follow your instincts and not sign.

Powell Associates Ltd. is a Licensed Insolvency Trustee. We are experienced, hands-on insolvency practitioners who understand the personal impacts of major financial stress;

• You won’t be stuck in an assembly line process.

• You will expect and receive prompt responses and resolution of issues from our supportive and experienced team.

• We will review your debt solution options, including filing a consumer proposal or personal bankruptcy.

• Help you understand what debts can and cannot be discharged.

• We help Canadians with overwhelming debt get fresh financial starts.

Once you file a consumer proposal or personal bankruptcy, we deal directly with your creditors on your behalf. Your unsecured creditors are required to stop contacting you or continuing legal proceedings against you. Contact us for a free consultation.

We offer free consultations to review your financial situation and practical debt resolution options. Contact us to discuss your situation over the phone, a video chat, or in-person in Saint John, Moncton, Fredericton, Charlottetown, Dartmouth, or Miramichi.