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Checks before you co-sign a loan

Co-signing means you owe the whole debt if they stop paying: check these before you put your name on it.

20 items · 4 sections · money, personal-finance, documents

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Understand what you are signing (5)

  • Accept that you are fully responsible for the whole loan, not halfIf the borrower misses payments, the lender can ask you for the money and report it on your credit record.
  • Ask whether you could pay every instalment from your own money tomorrow if you had to
  • Check that you could still pay your own bills and rent if you had to cover it
  • Ask yourself what would happen to the friendship or family bond if payments stopped
  • Remember a co-signed debt can count against you when you apply for your own loan

Ask the borrower (5)

  • Why they need a co-signer: what stopped them borrowing alone
  • How much they are borrowing, for how long and the interest rate
  • How they will pay it back and what their income is
  • Whether they have any other loans or missed payments
  • What they will do if they lose their job

Ask the lender (5)

  • Get the full loan agreement in writing before you sign anything
  • Ask for the interest rate, all fees, late fees and the total you would pay back
  • Ask whether you get a copy of every statement and a notice if a payment is missed
  • Ask whether you can be released from the loan later and when
  • Ask whether the lender can come to you first if the borrower is late

Protect yourself (5)

  • Do not sign if you cannot afford to lose the money
  • Ask for online access to the account so you can see payments yourself
  • Set a reminder to check the balance and payment status each month
  • Keep copies of all the papers you sign
  • Say no politely if you are not comfortable: a smaller favour is still a favour

Written from www.consumerfinance.gov

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