Protecting Yourself When Co-signing a Loan
You might want to cosign a loan for a loved one to help them out in a time of need. Your intentions are commendable, but you also want to make sure you don’t end up getting a raw deal. You need to take some precautions in order to protect your credit. Here are some precautionary measures you can take to protect yourself in this potentially risky situation.
Protections You Need
You need to make sure that both your and the other party’s name are on the loan. This means that both sides will need to be consulted in major matters regarding the loan. That way, you always know what is happening with the loan and if any changes occur. If you do not do this, then you risk being left out of the loop on important matters.
If this is an auto loan, then make sure you have a set of keys to the car. Since you co-signed for it, you are considered a part owner. Having a set of keys will give you more control in the proceedings, as you may have to take possession of the car. If this happens, a set of keys will make repossession much easier.
If you end up solely responsible for the loan, then you need to take action. This situation likely arose because your co-signer ran out of money, lost a job, or encountered some other financial setback that rendered him unable to pay. When this happens, you need to go to the lender immediately and discuss the circumstances. Your lender can then tell you what options you have.
Don’t expect the lender to let you off the hook, but you just need to let them know if your co-signer skips out. If you don’t pay, delinquencies will show up on your credit. Continue making the payments and try to renegotiate the terms and/or rates of the loan to make it more affordable.
You Are Doing a Nice Thing
You need to stay in constant communication with the person with whom you cosigned. You need to keep on them and make sure that they always make their payments on time. If your co-signer falls behind on payments, contact him to let him know how his delinquencies will affect your credit. After all, you are doing your co-signer a huge favor by lending your credit.
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