Cosigning on loans is not an uncommon practice, but it may leave you feeling vulnerable. What if the person taking out the loan defaults? What options do you have if you\’re unable to pay? Luckily, cosigning on a loan can be safe and helpful for both of you if you take some steps to get off on the right foot.

The first thing you should do when you are being approached about cosigning on a loan is to have a candid conversation with whoever is approaching you. Having a conversation about where you are financially and ensuring that the person you are helping is in a solid financial situation is critical to success before you begin. It is also critical that you speak with the primary borrower to learn what the monthly payments are and what financial institution he/she is borrowing from.

Should you decide after you conversation that cosigning on the loan is a good idea there are a few things to remember.

First, that if you cosign you agree to be responsible for the entire loan as if it were your own loan. However, unlike your own loan you will most likely not be notified if the primary borrower has paid late, or not paid at all, for several months. Should the primary borrower be irresponsible or uncommunicative this can hurt your credit score. On the flip side of that, if the primary borrower is responsible and communicates to you effectively then this can help your credit score. Either way, open lines of communication are key.

Second, even if the primary borrower is paying on time the loan is included in your credit history as debt that you have accrued. This can negatively affect you if you choose to seek a loan during the repayment period. If you\’re looking to take out a major loan (an auto loan or mortgage are good examples) cosigning may not be for you.

Third, there are several things that are within your rights to ask for as a cosigner on the loan. You can ask the lender to guarantee in writing that you\’ll be notified immediately if there\’s a late or non-existent payment. While the lender is not legally obligated to give these to you you should also ask for a copy of the loan contract, the Truth-in-Lending Disclosure Statement, and any applicable warranties. If the lender will not provide them, ensure that the primary borrower provides them to you. Remember, you\’re doing this person a favor and you have the right to know everything about the debt that you are accuring.

While cosigning on a loan can be beneficial to you, and to the primary borrower, it is important to approach such an arrangement with some caution. Ensure that the primary borrower knows of his or her rights and responsibilities and educate yourself as well. You have the right to view what you are signing and to get information from the financial institution of the primary borrower regarding the loan.

Are you looking for more information regarding Cosigning a Loan? Visit http://www.thecreditjourney.com today!

Are you looking for more information regarding Cosigning a Loan? Visit http://www.thecreditjourney.com today!

Author Bio: Are you looking for more information regarding Cosigning a Loan? Visit http://www.thecreditjourney.com today!

Category: Finances
Keywords: loan defaults,primary borrower provides