Cosigning on a Loan

What would you do if a someone asked you to cosign a loan? Before you answer, understand what cosigning involves. Under federal law, creditors are required to give you a notice that explains your obligations.

The Cosigner's Notice states:

You are being asked to guarantee this debt. Think carefully before you do. If the borrower does not pay the debt, you will have to. Be sure you can afford to pay if you have to, and that you want to accept this responsibility.

You may have to pay up to the full amount of the debt if the borrower does not pay. You may also have to pay late fees or collection costs, which increase this amount.

The creditor can collect this debt from you without first trying to collect from the borrower. The creditor can use the same collection methods against you that can be used against the borrower, such as suing you, garnishing your wages, etc. If this loan is ever in default, that fact may become a part of your credit record.

Other Cosigning Facts:

Depending on your state, the above cosigner notice may not apply. If state law forbids a creditor from collecting from a cosigner without first trying to collect from the primary debtor, this sentence may be crossed out or omitted altogether.

Ask the lender to agree in writing to notify you if the borrower misses a payment. That will give you the time to deal with the problem or make back payments, without having to repay the entire ammount immediately because it was too late once you found out.

Check your state law for additional cosigner rights.

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