Sometimes, a friend, family member or loved one is put in a position where they are in need of financial help. Occasionally, this help comes in the form of co-signing a loan. This may be to help with the purchasing of a house, the starting of a business or just to help them get back on their feet. Although co-signing a loan may seem like a safe way to help this person out, it is not always a wise decision.
Before co-signing a loan, it is important that the co-signer knows exactly what they are committing to. Many Canadians are under the impression that when they co-sign a loan, they are responsible for a portion of the loan. In reality, the co-signer is actually responsible for all of the loan.
When someone co-signs a loan, they have to be responsible and treat the debt like it is theirs. This is due to a number of reasons, although, the most notable one is that if the primary individual and co-signer(s) don’t make the payments on time, it will have a negative effect on both of their credit scores. This can have a major impact on both the primary individual and the co-signers ability to make large purchases in the future.
Anyone who is considering co-signing a loan should ask for a copy of the paperwork. This will allow them to educate themselves on the finer details of the loan. It will also allow them to learn when they will be notified about payments. This allows the potential co-signer to stay organized in the event that they end up co-signing the loan.
It is also important to assess your own funds before committing to the loan. Anyone who wouldn’t be able to afford the loan themselves should definitely not consider co-signing a loan for someone else. This can prevent potential financial issues in the future.