Information for loan officers | Information for consumers
What would you do if a friend or relative who is about to take a loan asks you to be their co-signer? Before saying yes, think about the obligations involved in being a co-signer of a loan – also called co-signer or co-signer – and the impact it can have on your own finances and your ability to obtain other credits. When you agree to act as a co-signer of a loan, you are assuming a risk that a lender will not assume.
- The notice to the cosigner
- Before signing as co-signer
The notice to the cosigner
When you sign a loan as co-signer or co-signer, the lender (known as the “creditor”) must clearly detail what their obligations are in a document called notice to the co-signer in which it is established:
- That you are being asked to guarantee the debt. Think hard before signing. If the borrower does not pay his debt, he will have to pay you. Make sure you will be able to pay if you have to, and think about whether you really want to accept that responsibility.
- That if the borrower does not pay, you may have to pay the full amount of the debt. It is likely that you will also have to pay the charges for late payment or the expenses incurred in the collection of the debt, all of which increases the amount payable.
- That the creditor can collect the debt without having to try to charge it first to the borrower *. The creditor can use against you the same collection methods that you would use against the borrower, for example, to sue or garnish the salary. If default is ever established, that event could be reported to your own credit report.
- That this notice is a notification and does not act as a contract that makes you responsible for the payment of the debt.
* The applicability of this point depends on the legislation in force in your state, therefore it may not be applicable. If state law prohibits the creditor from charging the cosigner without trying to collect the principal debtor first, then this phrase may be deleted or omitted in the notice.
Before signing as co-signer
Despite the risks involved in being the co-signer or co-signer of a loan, you may ever want to do so. For example, your child may need your signature to take out your first loan, or a close friend may need your help. Before signing, consider the impact it could have on your financial well-being.
- Are you in a position to assume the loan payment? If they ask you to pay and you can not, they could sue you or it could have negative consequences for your credit score.
- Even if you are not asked to repay the debt, the responsibility assumed for that loan may restrict your ability to get another loan. Credit grantors will consider the amount of the loan you signed as a co-signer as one of your credit obligations.
- Before committing property of your property to guarantee the loan, such as your car, furniture or jewelry, make sure you understand what the consequences are. If the borrower does not pay, you could lose your assets.
- Ask the lender to calculate the amount of money you may have to pay if the borrower does not. The lender has no obligation to make this calculation, but may do so if you ask. In addition, you can try to negotiate the specific terms of your payment obligation. For example, you can limit your liability for payment to the principal amount of the loan, and exclude late fees, court costs, or attorneys’ fees. In this case – before signing – ask the lender to include a clause in the contract with a text that says something similar to: “In case of non-payment, the cosigner will only be responsible for paying the balance of the principal amount of this loan at the time of default “.
- Ask the provider to commit to notify you in writing when the borrower skips a payment or when the terms of the loan change. In this way, you will have time to resolve the problem or pay the arrears without having to return the total amount immediately.
- If you are signing as a co-signer of a purchase, make sure that you are given copies of all important papers, such as the loan agreement, the information document established by the Truthfulness Act in the Loan Operations, and the guarantees. If a dispute arises between the borrower and the seller, you may need these documents. The lender is not required to give you these papers, but you can ask the borrower for copies.
- Check the applicable laws in your state to see if you have other rights as a co-signer.