Being a co-signer on a personal loan for a friend or family member is a very generous offer as it means the difference between them is able to qualify for such a loan and not being eligible. However, the decision of being a co-signer for a personal loan may not be lightened. It is for potential co-signers to educate themselves about how this situation affects them, especially with regard to their responsibility for the loan if the borrower defaults.
Since the loan can both positively and negatively affect the credit co-signer, it is important to set the loan up so that the co-signer can access account information. This will allow you to find out what has been paid on the loan, and what is still owed. Make sure that the lender will inform you of any late payments or non-payment issues with the borrower as soon as they happen. Too often signatures aren't aware there was a problem with the loan until it has already impacted their credit.
You might consider having the borrower provide you with verification that payments are being made including regular statements. To further reduce your risk as a co-signer insist the borrower purchases personal loan insurance that can cover loan payments for a certain amount of time due to unemployment, illness or death.
Co-signing a personal loan for someone is more than giving your signature. You put your financial history and worthiness on the line for that person. It is important that you carefully read the borrowers need the money and their spending habits. There are times when you as a co-signer for a personal loan is the right thing to do. Only you can make that choice. If you decide to go ahead with it to make sure you can afford the cost of all the missed payments and the lender will keep you informed on the payment status on the personal loan.
Co-signer on a Personal Loan
