Cosigning a Loan

What would you do if a friend or relative asked you to co-sign a loan? Before you answer, make sure you understand what co-signing entails. Busey Bank EVP Susan Abbott: studies show for co-signed loans that go into default, 3 of 4 co-signers are required to repay the loan. Q1: What does it mean to be a co-signer? ˇCo-Signers/Guarantors usually denotes probable inability of a single borrower to qualify, and thereby agree to add their names as co-signers to the loan. Proceeds are likely to be for the primary benefit of primary borrower. Co-signers are guarantors of the debt. Q2: What is the difference between being a co-signer and a co-borrower? ˇCo-Borrowers are jointly and severally responsible for repayment of the debt, and typically benefit equally from the proceeds of the loan (example: 2 individuals, as co-borrowers, purchase a car and hold title jointly; or 2 or more co-borrowers of the same household use proceeds for consolidation of household debts). Q3: What are a co-signers obligations? Creditors are required to give you a Notice To Co-Signer that explains your obligations: ˇYou are being asked to guarantee this debt. Think carefully before you do. If the borrower doesnt pay the debt, you will have to. Be sure that you can afford to pay if you have to, and that you want to accept this responsibility. ˇYou 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 the amount. ˇThe Lender can collect this debt from you without first trying to collect from the borrower. The Lender 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 debt is ever in default, that fact may become a part of your credit record. ˇThis notice is not the contract that makes you liable for the debt. Q3: What if you do want to co-sign or guarantee a loan? ˇBe sure you can afford to pay the loan. If youre asked to pay and cant, you could be sued or your credit rating damaged. Even if youre not asked to repay the debt, your liability for the loan may keep you from getting other credit because creditors will consider the co-signed loan as one of your obligations. ˇBefore you pledge property to secure the loan, make sure you understand the consequences. If the borrower defaults, you could lose these items. ˇMake sure you get copies of all important papers, such as the loan contract, the Truth-in-Lending Disclosure statement and other documents, such as warranties if youre co-signing for a purchase. You may need these documents if there is a dispute between the borrower and the seller.