While you may want to help out a friend or a family member by cosigning a loan for them, you have to consider your own credit health before committing to the responsibility. Basically, don't sign anything until you learn the facts.
Cosigning on a Loan Can Severely Impact Your Credit Rating
While it would be a great and generous favor to someone you care about, cosigning has the unfortunate potential to end badly for you and your credit. Of course, sometimes this arrangement works out perfectly well for both parties involved. Just make sure that both you and the primary borrower understand what may be at stake when two people share one loan.
- When you cosign, you are agreeing to be responsible for the entire loan as if it were your own. If the person whom you are signing for makes late payments or defaults entirely, you will be expected to pay the whole balance plus any fees involved.
- Generally speaking, lenders are not required to notify the cosigner about late payments. In fact, if the bill remains unpaid, you may not be aware of the fact until you get a call or letter from a collection agency.
- Because cosigning for a loan essentially makes the loan your loan too, it will be considered when your debt to income (DTI) ratio is calculated by potential lenders. So, if you are considering a major purchase that requires financing, the loan that you cosign for could possibly hurt your approval chances by making your DTI ratio too high.
- Once you have signed onto the loan, you probably won't be able to back out of the contract. More than likely, the loan balance will have to be completely paid off before you will be released from your responsibility. Even if the primary borrower is having trouble making the payments, it is doubtful that they will be able to refinance the loan in their name.
When Cosigning Seems Right
As previously mentioned, a cosigning arrangement can have a happy ending. And if you're ready to show a friend or family member that you truly believe in them, Auto Credit Express will help that borrower find an affordable auto loan that truly fits their needs.
Or, if you're the one who needs financing, just fill out our fast and secure online application to get started today.