If you’ve been approached by a family member or friend asking for your help getting credit by having you co-sign a loan, or are considering obtaining joint credit (read: debt) with your spouse, there are a few things you should know first. Whether you’ve already co-signed, or are about to – have a read of three co-signing basics:
1. By co-signing a debt, you become equally responsible for repaying any balance to the lender. If one borrower doesn’t pay the debt back, the bank can demand that anyone listed in the loan or agreement repay the entire amount. This type of liability is known as ‘joint and several’.
TIP: When considering whether or not to co-sign a debt for someone else, think about whether or not you would be able to repay the entire debt if they other person didn’t; particularly if the entire balance is demanded immediately. How would a reduction in your credit rating or a debt collector contacting you affect you, and your relationship with the other borrower?
2. Some credit card terms may state that secondary cardholders can be held responsible for outstanding balances, even if the original credit card application wasn’t signed by them.
TIP: Don’t assume that because the card was issued to the other person and you were merely given a secondary card that this means you’re off the hook. Read all credit agreements in full carefully. If you’re unsure as to any wording or terms be sure to ask your lender.
3. All borrowers have the right to receive information from the lender about the loan. Unless you consent in writing or verbally to waive this right, the lender must provide everyone copies of the credit agreement and monthly statements.
TIP: Reviewing the monthly statements is a great way to keep track of the status of the credit, ensuring that the other borrower is making payments and that you’re aware of any changes to the terms and agreements. Get written confirmation from the lender once the debt has been repaid in full, stating that you are no longer responsible.
Co-borrowing with someone else can be a big responsibility, which can also translate into big cost if the co-signer isn’t fully informed. Whether you’re seeking credit for yourself or for someone else, always be sure of the expectations and rights of everyone concerned before signing.
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