{"id":17,"date":"2016-09-11T12:00:00","date_gmt":"2016-09-11T12:00:00","guid":{"rendered":"http:\/\/www.consumerslaw.com\/blog\/cosigning-loan-all-risk-little-reward\/"},"modified":"2023-03-27T17:17:41","modified_gmt":"2023-03-27T21:17:41","slug":"cosigning-loan-all-risk-little-reward","status":"publish","type":"post","link":"https:\/\/www.consumerslaw.com\/blog\/cosigning-loan-all-risk-little-reward\/","title":{"rendered":"Co-signing a Loan: All Risk, Little Reward"},"content":{"rendered":"

\"\"Co-signers lend their names and good credit histories to the primary borrower, usually when the other borrower cannot obtain credit on his or her own.\u00a0 For example, a parent may co-sign for a child who does not yet have a credit history. Or, someone may be asked to co-sign by a friend or relative whose credit is tarnished, has negative marks in their credit history, or a low credit score<\/a>.<\/p>\n

Co-signing a loan does not mean that you are serving as a character reference for someone else. Here\u2019s what you should know before you co-sign a loan.<\/strong><\/p>\n

Five Dangers of Co-Signing a Loan<\/h2>\n

1) You\u2019re Liable<\/h3>\n

When you agree to co-sign on a loan, you are liable for payment of the loan. You risk having to repay any missed payments immediately, or having to pay the full loan balance if your co-borrower defaults.<\/p>\n

If the co-borrower defaults on the loan, the lender can use the same collection methods against the co-signer, such as demanding repayment of the entire loan, filing a lawsuit, and garnishing bank accounts after a judgment.<\/p>\n

Credit scores may be impacted negatively by any late payments or defaults by either co-borrower. If the primary borrower dies, loses a job, goes through divorce, files bankruptcy, or otherwise fails to make payments, all responsibility for meeting the terms of the account generally transfers to the co-signer.<\/p>\n

In some cases, the person who thought they were merely a co-borrower\u00a0or guarantor was really listed in auto finance documents as the primary borrower. Be aware that if your co-borrower is primarily irresponsible for timely monthly payments, your credit score could suffer if he or she pays late,\u00a0even if the lender did not give you a timely notification\u00a0of the missed payment.<\/p>\n

2) You Could Be Sued if Payments Aren\u2019t Made<\/h3>\n

Failure to pay on the loan (or another breach of the loan agreement, like not keeping up the car insurance) means the lender can come after you for the entire balance.\u00a0The co-signer often gets sued first because their credit is stronger and the bank believes they’re more likely to repay the debt.<\/p>\n

3) It\u2019s Difficult to Remove Your Name from the Loan<\/h3>\n

Once the account is opened, it’s very tough to remove a co-signer from the loan. We often hear stories of car buyers being told by the salesman to return after four to six months, at which time\u00a0the dealer will supposedly remove\u00a0one of the borrowers from the paperwork. This is not true, but rather a tactic to sell cars. Both the primary borrower and co-signer need to satisfy the loan in order to terminate the loan agreement, or obtain the lender\u2019s express permission to remove one of two co-borrowers.<\/p>\n

4) Tax Consequences of Settled or Unpaid Debt<\/h3>\n

The lender might not want to go through the trouble of suing you, so they\u00a0agree to settle a post-repo deficiency balance for less than the balance owed. This means that you could have tax liability for the difference.<\/p>\n

For example, if you owe $10,000 and settle for $4,000, you may have to report the remaining $6,000 as “debt forgiveness income” on your tax returns and pay tax on it. Settling on the account for less than the full sum may also leave a negative mark on your credit report<\/a>. You may need to seek professional tax advice on this.<\/p>\n

5) Difficulty getting approved for a loan<\/h3>\n

Before you co-sign for someone, think about whether or not you\u2019ll need to use your credit for your own needs. A lender may deny a credit application if there is too much credit in your name or the balances are too high relative to your income.<\/p>\n

Seek Legal Advice<\/h2>\n

\"\"Flitter Milz is a nationally recognized consumer protection law firm representing people in matters against lenders, debt collectors and the credit bureaus.\u00a0 Whether you or the co-borrower has fallen behind on payments or not, Contact Us<\/a><\/strong><\/span> for a FREE evaluation of whether your consumer rights have been violated.<\/p>\n","protected":false},"excerpt":{"rendered":"

Co-signers lend their names and good credit histories to the primary borrower, usually when the other borrower cannot obtain credit on his or her own.\u00a0 For example, a parent may co-sign for a child who does not yet have a credit history. Or, someone may be asked to co-sign by a friend or relative whose … <\/p>\n

Continue reading Co-signing a Loan: All Risk, Little Reward<\/span> →<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[2,6,4],"tags":[41,52,36,44],"_links":{"self":[{"href":"https:\/\/www.consumerslaw.com\/blog\/wp-json\/wp\/v2\/posts\/17"}],"collection":[{"href":"https:\/\/www.consumerslaw.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.consumerslaw.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.consumerslaw.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.consumerslaw.com\/blog\/wp-json\/wp\/v2\/comments?post=17"}],"version-history":[{"count":10,"href":"https:\/\/www.consumerslaw.com\/blog\/wp-json\/wp\/v2\/posts\/17\/revisions"}],"predecessor-version":[{"id":3179,"href":"https:\/\/www.consumerslaw.com\/blog\/wp-json\/wp\/v2\/posts\/17\/revisions\/3179"}],"wp:attachment":[{"href":"https:\/\/www.consumerslaw.com\/blog\/wp-json\/wp\/v2\/media?parent=17"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.consumerslaw.com\/blog\/wp-json\/wp\/v2\/categories?post=17"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.consumerslaw.com\/blog\/wp-json\/wp\/v2\/tags?post=17"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}