Should Consider When Co-signing a Loan
There are many things you should consider before co-signing a
loan with someone. Just as with any other legal agreement, when
you co-sign a loan agreement you have specific obligations under
the agreement that your lender (“creditor”) will make you aware
• By co-signing, you are being asked to guarantee this
debt. If the borrower does not pay the debt, you will have
to. Do 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. If this debt is ever in default, that
fact may become a part of your credit record.
Before You Co-sign
Despite the risks, there may be times when you want to
co-sign. Your child may need a first loan, or a close friend may
need help. You will want to consider how guaranteeing a debt
might affect your financial well-being.
• Can you afford to pay the loan? Even if you're not
asked to repay the debt, your liability for the loan may
keep you from getting other credit. Creditors will consider
the co-signed loan as one of your obligations.
• Before you pledge your car or other property to secure the
loan, make sure you understand the consequences.
• Ask the creditor to agree to notify you in writing if the
borrower misses a payment. That will give you time to deal
with the problem or make back payments without having to
repay the entire amount immediately.
• If you're co-signing for a purchase, you will want to get
copies of all important papers, like the loan contract, the
Truth-in-Lending Disclosure Statement, and warranties. These
documents may come in handy if there's a dispute between the
borrower and the seller. The creditor doesn’t have to give
you these papers; you may have to get copies from the
• Check your state law for additional co-signer rights.
If you have any questions about financing, please contact a
Baylake Bank lender for more information.