What You Need to Know Before Co-Signing a Loan
In this economic climate qualifying for a car loan, mortgage or credit card can be difficult. Parents, friends and family may think they are just helping out by co-signing on a loan but the legal and financial risks involved are much higher than many initially understand. Our Richmond bankruptcy lawyer discusses key information you need to know before you co-sign on a loan.
Co-Signing Can Affect Your Credit Score
When you co-sign for a loan it will appear as another financial obligation on your credit report. When you attempt to apply for a loan yourself, lenders will consider the loan you have co-signed for as another liability and if the loan makes your overall debt appear high in comparison to your income, you may be forced to pay a higher interest rate on your own loan.
Removing Yourself from the Loan is Difficult
When a lender requires a co-signer for a loan it generally means that person on their own would be too much of a financial risk to lend to by themselves. Once you have signed on the loan, it is extremely difficult to back out of that commitment. If you need to back out of the commitment and you co-signed on an auto loan or a mortgage, you may be able to request the person refinances the loan in their own name. If you have co-signed on a credit card, you may be able to request the credit card company remove you from the card once it has reached a zero balance. At that time, the lender may decide if they would allow the main card holder to continue as the sole account holder or not.
Ways to Protect Yourself as a Co-Signer
First, you want to fully understand your responsibilities as co-signer. When you co-sign on a loan you are agreeing to pay back the lender should the primary borrower default on their loan. You may also be required to pay back late fees and collection costs would increase the amount of the loan. In addition to that, depending on what state you live in a collector could sue you or garnish your wages before attempting to collect on the primary loan holder. Before you sign the loan, ask the creditor to negotiate the specific terms of your obligation. You can also ask the creditor to hold you liable for the principal of the loan meaning you would not be responsible for paying back late charges, or court costs should the loan default. You also have the option to ask the lender to include verbiage in the contract stating that you will be notified if the borrower misses a payment.
Contact an Experienced Richmond Bankruptcy Attorney
Are you unable to re-pay a loan you had previously co-signed on due to bankruptcy? If this sounds like your situation, remember you still have rights! Contact our Richmond bankruptcy attorney today for a free case analysis. At Bruce W. White P.C. we are deeply invested in providing excellent legal guidance to good people experiencing tough times.
Call today to schedule your case analysis.