What You Need 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. But before you make the decision to sign for a loan for 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 type of 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 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 score is impacted by your credit utilization. This is the total of all your credit card & 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 carefully consider the above factor 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 you would be best to follow your instincts and not sign.
For a free consultation over the phone or in person in Saint John, Moncton, Fredericton or Charlottetown, please contact us. Powell Associates Ltd. is a licensed insolvency trustee focused on providing debt settlement, proposal and bankruptcy solutions for individuals and businesses.