How Does Co-Signing Work?

Introduction

Co-signing a loan is something a person should think seriously about before doing. To co-sign means that you are guaranteeing that you will pay off a loan, if the borrower does not. This means that you should make sure that you can afford the monthly payments that are involved before signing on the dotted line. Also, loans are not the only thing that can be co-signed. Credit cards and other lending devises also allow co-signers.

Explanation

When you co-sign, you will be sent a letter from the lending company stating that you are guaranteeing the debt. The letter may also state that everything will be done to collect from the borrower, before resorting to collecting from the co-signer. But you should also take note that in most states, the lender does not have to try to collect from the debtor first, if the debtor is in default of the loan. Most states will allow the lender to go after the co-signer as soon as the loan goes into default.

Considerations

Once the lender turns to the co-signer for collection, it can effect the co-signer's credit. If the co-signer misses a payment, it will reflect negatively on his credit report, and the lender can come after him as well as the original borrower for restitution.