Sometimes a friend or relative with poor credit may ask you to co-sign on their car loan. It’s important to know that co-signers take on financial responsibilities for the duration of the loan. Co-signing does not just mean that you are a character reference for the borrower. Before you sign, keep the following five points in mind.
1) Get Familiar with the Account
Before you sign, make sure you know what you are agreeing to. Know the purpose of the account, the type of account, the terms, and why your friend or relative needs a co-signer.
If you co-sign, establish access to the account so that you can verify that payments are made on time and as agreed each month.
2) Understand Your Legal and Financial Obligations
Read and understand the credit contract. Be aware that a lender may be able to collect from you even when there is collateral. In the case of a car loan, for example, the lender might demand payment from you instead of repossessing the car. Sometimes, even if the car is repossessed, its value may not be sufficient to pay off the loan.
Understand that if the primary borrower defaults and has missed a payment, the lender can demand payment from you. As well, the lender, or a debt collector, may try to collect from you. The debt may include the principal amount, plus interest, late fees or collection costs.
3) Monitor the Payment History
Get access to monthly statements, either online or through customer service, so that you can see when payments were applied to the account. Make certain the lender applied the payment properly, with specific amounts to principal and interest.
Don’t wait until a collector calls saying payments have not been made. By that time, your credit may already have been negatively impacted. Remember, one missed or late payment could mean a black mark on your credit.
4) Check Your Credit Reports
Check your credit reports regularly with Transunion, Experian, and Equifax to see how this loan is being reported. If there are late payments, address the problem with the co-borrower. If the reporting is inaccurate, send written disputes to the credit bureaus.
5) Prepare for the Worst
Create an account where you make the monthly payment. If the co-borrower misses or stops making payments on the loan, you’ll have funds readily available to cover the missed payment and keep your good credit name.
Seek Legal Advice
Flitter Milz is a Consumer Protection law firm that represents consumers involved with matters concerning wrongful vehicle repossession and credit reporting errors. Contact us for a no cost consultation.
