Co-Signing

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Co-Signing

Assuming responsibility for someone else's payment obligation in the event that that party defaults.

The Case for Co-Signing: When my son graduated from college, he had no credit, but needed a loan to buy a car. I co-signed his car loan. By doing this, I put my credit on the line to help him. It made sense, because I knew my son was a good risk but the lender didn't. My son established his credit-worthiness with this loan, and I never had to co-sign for him again.

Hazards of Co-Signing: The major hazard in co-signing a loan or a lease is that you may be forced to pay. You only do it for someone in whom you have a lot of confidence.

Too often, people co-sign without giving it much thought—until they find themselves being dunned for payment. Then they begin to look for ways to escape.

But there is no escape. Once you co-sign a note, there are only two ways to get off. Either the loan must be repaid in full, by the borrower or you, or the lender must agree to take you off. The lender is not going to let a co-signer off the hook when the borrower stops paying. The risk of non-payment is why the lender required a co-signer in the first place!

A lender might allow a co-signer off a note if the borrower has been making the payments faithfully for some time. But the lender
has no financial incentive to do this, and there is no way of knowing in advance how long it will take, or if it will happen at all.

A second possible hazard is that a co-signer may be handicapped in getting a loan of his own because of the contingent obligation represented by the co-signing. This is a loan qualification problem. Lenders impose limits on the amount of existing debt a borrower can carry, and the co-signing obligation is considered debt for qualification purposes.

This problem can usually be remedied if you can document that the borrower for whom you have co-signed has been making the payments on time for a reasonable period. The lender who wants to make a loan will have a reason to remove the debt from your loan application. You remain a co-signer, but the lender is ignoring your obligation to the other lender in assessing your ability to repay a new loan.

References in periodicals archive ?
However, if you just can't resist the temptation to co-sign, protect yourself.
Before you co-sign for anyone, insist that they calculate their debt-to-income ratio (see formula below), since it's a good indicator of whether they have debt problems.
According to a nationwide CESI survey, 87 percent of respondents reported that they would be "unwilling to co-sign for someone under the age of 21 to get a credit card," compared with 10 percent who said they would co-sign and 3 percent that responded not applicable.
Joel Fox of the Howard Jarvis Taxpayers Association plans to co-sign and possibly write arguments against all of the tax measures except the library bond, which he said has been given sufficient scrutiny.
Rush didn't sign a letter of intent with the Jayhawks in November - his mother, Glenda, refused to co-sign - but he was widely considered a future Jayhawk.
MercuryMD's complete ActivOrders product will also include functionality allowing physicians to place high yield lab orders, co-sign preliminary orders, and view status of all orders - from their handheld device.
Since her mother had to co-sign with her to open the account, the collection agency was able to seize her money while going after her mother's.
What if the grantor co-signs the loan with the trust?
They cannot hold a driver's license, nor can they buy a house unless a hearing person co-signs the contract.