Be Doubly Sure Before Co-Signing a Personal Loan

Most of the time, parents find themselves co-signing on their children’s debts to enable them to establish their credit, and so on, but this is certainly not a great thing when it comes to personal loans. Indeed, it is a fine act, and reveals that you truly are concerned and are sure about the person you co-sign for, but have you considered what will take place if that person is unable to clear his debt? Do you have the financial capability to repay it, or are you willing to work hard to pull through? Definitely, you want to believe that your friend or kid would never put you in such a situation, but we never can tell what the future has in store. In case they get married, fall ill, or are forced to give up their job, they may well believe that they can no longer afford to settle this debt, and in such a situation, the lender will approach you for loan payment.

You then cannot refuse to repay the personal loan on which you co-signed, if the signer fails to pay. Many people forget, but you must remember that whenever a payment is deferred, your personal credit will take a hit, apart from that of the signer. Besides that, in case you personally have to take out a loan, then this loan will have a bearing on how much you are qualified to get, since it will be added to your monthly debts. While you are not actually the person discharging his monthly obligations, since the loan was extended based on your credit rating, the remaining payments will be taken into account when ascertaining your entitlement for a personal loan. In spite of all this, if you still resolve to co-sign a personal loan, ensure that you have an agreement with the signer, mentioning that he is responsible for all the payments, and that after a specified period, he needs to go in for loan refinancing in his own name, releasing you from this obligation, and opening up your credit in case you require to avail of it.

Moreover, you should always be updated with the loan details so that you are in control, if push comes to shove. Ask for a loan statement to be mailed to you, and insist that you be alerted instantly when a payment is not made, in order that you can assume charge of the situation. In case you do not make this clear to the lender, and initiate your own measures to ensure the obligation is discharged, the loan would well be three or four month overdue before you are informed, by which time, your credit has been severely damaged.

Consider how your rapport with the borrower will be affected if he defaults on the loan. Now if you damage your credit by attempting to do someone a good turn, will you show antipathy towards that person, or continue your relationship like in the earlier days? A lot of relationships are ruined by this kind of situation, and hence it is vital to sit down and chew on that before consenting to co-sign a personal loan for someone else.

Do not make it a habit to co-sign for friends and family members. In case you co-sign for a family member, and he, in turn, informs someone else about it, then shortly, you will find people making a beeline to your door requesting you for your assistance. If you refuse you will put your relationship at risk, but, on the other hand, you certainly do not want to jeopardize your credit either, and you find yourself on the horns of dilemma. Ensure that you by no means co-sign a personal loan, which is next to impossible for you to repay, in case something unforeseen does happen.

Together with ensuring that you are always in a position to handle the loan, inform the borrower that you want some evidence that the payments are being made every month, like receipts given by the lender, and so on. In addition, when the preliminary paperwork is being prepared, ensure that this loan is insured, in order that in case of sickness, or job loss, the payments will continue to be made. An additional amount is charged for insurance, but if the personal loan is co-signed by you, then it certainly is not something that you would compromise on.

When you co-sign a personal loan, in essence you are stating that if the borrower is unable to discharge his debt, you will. In case you are averse to or are disinclined to do such a thing, then you should be decisive in refusing. Well, it is definitely your call, but co-signing carries a lot of risk, even under the most ideal conditions.