The government in the past five to 10 years has changed regulations pertaining to financial institutions. In addition many people are still having financial troubles whether it is from natural disasters, losing their job or an emergency that you could not foresee.
By nature we have the tendency to want to help our loved ones, relatives and friends that are having financial difficulties at the time. We may try to see if we have available cash in our budget or possibly get a personal loan. However there is another way that you may decide to help those people and that might be to co-sign a loan. This decision has emotional ties and may cause you to be impulsive with your own financial stability.
The Risk and Legalities to Consider
When you make a decision to co-sign a loan for personal reasons or to help by an automobile there are ratifications legally. The reason that the friend, loved one or family member could not obtain a loan on their own was because of past debt that they owe in many cases causing a bad credit score or have been late and possibly missed payments.
Regardless the financial reason you need to take a look at your financial status before making a commitment that might put you and your family into financial distress. The legalities for you to co-sign a loan are no different if you were taking out the loan for you personally. This is why people should be realistic and not emotional when making financial decisions. Below is an explanation on why the risk is so high to consider and why as a co-signer the legal responsibility is overlooked until a court of law becomes involved.
- The lender is a financial institution will check your credit score and make inquires about your financial status. They will also be the first to seek payments if any are missed and take you to civil court to sue you.
- If you are considering to co-sign a loan for a spouse because he or she wants a new car to drive. Remember this can become your financial hardship simply because statistics are not in your favor. Many marriages end up in divorce and you will still need to pay the loan off even if the car is in their name.
- Friendships are destroyed along with ending badly and in many cases these individual’s do not care about having more awful marks on their credit score. You have more to lose in the long run.
- Implications of a spouse helping a family member by being the one who does co-sign a loan can actual cause the family financial issues in the future. If and when this happens then the spouse’s credit is dragged down and any plans in the future in buying a new car or anything else for that matter will no longer be jointly.
- As a co-signer you are liable to make payments when the borrower does not make them and everything you worked for to get the excellent credit will be lost.
- You want to help them out but can a possibility be to give them money as a gift.
- You may want to consider personally loaning them the money and have them make payments to you in smaller increments. It would mean that they would need to be responsible for keeping their end of the deal along learning to manage money.
- You may want to discuss with them about applying for a secured loan at one of the financial institutions that have a low interest rate.
Alternatives to Considering before Co-signing
If there is no other way to help them and the only thing to do is to co-sign the loan; so that the friend, loved one, spouse or relative can get back on their feet financially. The next step is to have the financial firm make duplicated of all the documents.
Many individuals feel that with the technology that having a paper trail is a waste of resources and it should be best if it was stored on a hard drive of a computer. Unfortunately computers are machines that sometimes lose data, crash or by human error information is not entered in correctly.
The reason to have the paper trail is for you to keep records of payment schedules and making sure that the loan is paid in full. It will give you a piece of mind and the stress level will be considerable less if you follow through on being the co-signer for any kind of loan. This makes the person who asked you happy, the lending or financial service happy because they will be paid on time and it will benefit your financial situation in the future.