Cosigner obligations on loans

Most lenders require a co-signer with a good credit history to sign your loan agreement before they process your loan application. They ask for co-signer because they always try to minimize the risk associated with the loan by transferring the risk to the cosigner. In other words, the co-signer acts as a guarantor to the debt that the actual debtor is opting for.

So it is always advisable to know your obligations before you co-sign a loan agreement. Federal law also requires the creditors to clearly explain the obligations to the cosigner. Mostly people with a bad credit score require a co-signer and so your good credit score may be at stake if somehow the actual borrower does not repay the loan. It has been seen that there are certain lenders who asks the co-signer to repay the debt as soon as the original creditor goes default. Thus, co-signing a loan agreement would mean that you are taking the risk that the original creditor is not willing to take.

You should therefore sign a loan agreement only if you are sure that you will be able to repay it in case the original debtor fails to pay it back. You may be required to pay back the full amount of the debt including the late fees and other charges which may arise from time to time. But in case you too cannot afford to pay back the debt, the creditors and the collection agencies my report it to the credit bureaus who in turn will list the debt in your credit report. This will lower you good credit score which you have used to become a co-signer.

However, in spite of this fact, there are situation where you have to co-sign a loan agreement. For example if the loan applicant is your son or other close family members, you may have no other option but to co- sign the agreement. But in such situations you may negotiate with the creditor to limit your obligation only to the principal balance of the loan. But in such cases too co-sign the agreement only after you are sure that you are able to pay it off.